B.   Class

            Not all courts agree that a secured tax claim should be prohibited from having a status of a voting class. Several of the courts that ultimately decided against the class status at least recognized the arguments for it.[1]These arguments include the lack of protection under § 507(a)(8), general treatment of secured claims, and guaranteed preferential treatment over unsecured claims. In the cases that follow, each court found that an impaired secure tax claim should have the status of a voting class.

            1.   Greenwood Point

            In Greenwood Point, while evaluating a plan for reorganization that included seven classes,[2]the court determined that a secured tax claim could constitute a class for purposes of § 1123.[3]Of the seven classes, two classes were not impaired and the court deemed both classes as accepting.[4]One class would receive nothing under the plan, and the court deemed it to reject the plan.[5]According to the plan, the remaining classes were impaired and entitled to vote.[6]The primary creditor objected to multiple aspects of the plan, including allowing the class comprised of the tax claim having a vote.[7]The creditor reasoned that the tax claim class was not impaired because it received all that was required by the statute, or alternatively, it is only artificially impaired.[8]Before the court could determine if the class was impaired, however, it had to determine if it was actually a class.[9]

            While the court looked to the Perdido Motel case, it recognized that the two situations were not exactly the same.[10]In Perdido, the tax claims were unsecured, and consequently, governed by § 507.[11]In Greenwood, the tax claims were secured, removing them from the protection of § 507.[12]Using the same analysis the Perdido court did, the Greenwood court determined that if a claim was secured, and not protected by § 507, then § 1123 did not bar it from being included as a class.[13]The court would go on to find that despite the plan conforming to the statutory requirements, the tax claim class was still impaired and could vote on the plan.[14]

            The Greenwood court attempted to solidify the test originally established in Perdido—if the tax claim was unsecured, it was governed by § 507, and not § 1123; if the tax claim was secured, it was not governed by § 507, and instead, by § 1123, allowing a class to exist.[15]

            2.   Sunflower Racing

            In Sunflower Racing Inc., the court dealt with another instance of a secured tax claim, which the court ultimately allowed voting class status. In this case, the plan for reorganization consisted of six classes.[16]Before the ruling of the court, classes 1, 2, and 5 voted to accept the plan.[17]The plan eliminated class 3 since it held some of the same claims as class 1.[18]Class 4 voted to reject the plan.[19]And class 6 was not impaired and did not vote.[20]

            The court did not distinctly address the issue of whether a secured tax claim could be a class.[21]Instead, the court’s analysis is contained in two lines, and treats the issues as being axiomatic.[22]First, the court notes that the Treasurer of Wyandotte County holds a lien on the Woodlands property,[23]and it is entitled to vote as an allowed secured claim.[24]Next, the court looked at if the claim was impaired.[25]Again the court found that the class could vote—it was impair by the fact that the payment would be deferred.[26]

            The Sunflower Racing court takes the issue of what claims can vote and when they are impaired at face value.[27]If the claim is secured, it can vote.[28]If the claim is impaired, it can vote.[29]Any amount of impairment will allow the class to vote.[30]A complex analysis is not needed or warranted.

            3.   Gramercy Twins

            In the case of In re Gramercy Twins Association, the court had to consider a reorganization proceeding that revolved around a single asset and seven classes.[31]The first two classes both had liens on the property: (1) City of New York for unpaid, pre-petition real estate taxes totaling $1 million;[32](2) Mass Mutual for $17.9 million.[33]The New York City lien had priority over all other liens.[34]Mass Mutual challenged the proposed plan, and attacked whether New York City could vote as an impaired class.[35]The court had already settled the issue of if the City had class status,[36]and proceeded to analyze if it was an impaired class under the current plan.[37]

            Under the proposed plan, the City of New York would receive 95% of the value of its claims.[38]During the vote, the City voted to accept the claim.[39]If the City did have class, or it was impaired, then the court could forego any other confirmation issues since the requirements of a cram-down would be met for the purposes of votes.[40]The court already determined the City had a voting class.[41]To determine if the City had an impaired class, it first noted that “‘for the purposes of section 1129(a)(10), a claim is not impaired if the alteration of the rights in question arises solely from the debtor’s exercise of discretion.’”[42]This led Mass Mutual to argue that the City had artificially impaired its own claim. A new partner’s, Simone, capital was being used to pay off 95% of the lien, in exchange for 30% of the equity and a preferred return of 15% per annum for five years on the amount of his investment. According to Mass Mutual, however, Simone agreed to pay the full amount of the City’s lien. In response the court attacks both the cases Mass Mutual relies upon, as well as the facts asserted.

            First, the court did not find Mass Mutual’s use of cases relevant to the current case.[43]According to the court, the facts of each case were distinguishable.[44]In order to artificially impair a class, the debtor would either briefly delay payments, or pay 99% of the claim.[45]This amount of impairment was de minimis, and not the same as the present case, in which the claim was reduced to 95% of the total claim.[46]The court did not determine at what point it is no longer considered de minimis, only that 99% is, while 95% is not.[47]

            Next the court looked to the actual facts presented.[48]The court agreed that Simone was willing to pay the full amount, but disagreed that this meant it was a feasible solution.[49]First, the debtor had an obligation to negotiate for the lowest payment that would satisfy the lien.[50]If the debtor agreed to pay 100% when it could have negotiated 95%, it would not be negotiating in good faith.[51]Second, the court disagreed that the City would ever see the remaining 5%.[52]The City had negotiated and voluntarily forfeited, so it had no right to this amount.[53]

            While the court did not detail it’s reasoning for allowing the secured tax claim class status, it did allow it.[54]In addition, even though the claim was voluntarily discounted, the court still found it to be impaired for purposes of determining voting rights.[55]


[1]           See In re Perdido Motel Group, Inc., 101 B.R. 289 (N.D. Ala. 1989).

[2]           In re Greenwood Point, LP, 445 B.R. 885, 891 (S.D. Ind. 2011). The seven classes included: (1) Allowed secured claims of CWCapital; (2) Administrative Claims; (3) Administrative operating expenses; (4) Secured tax claims; (5) Non-priority unsecured claims of CWCapital; (6) Other non-priority unsecured claims; and (7) equity interests. *Id.*

[3]           Id. at 906–07.

[4]           The plan called for both administrative claim classes to be paid in full. Id. at 891.

[5]           The plan allowed for no distribution to the equity class. *Id.*

[6]           *Id.*

[7]           Greenwood Point, 445 B.R. at 892.

[8]           Id.

[9]           Id. at 905.

[10]          Id. at 906.

[11]          *Id.*

[12]          Id. at 906–07.

[13]          Greenwood Point, 445 B.R. at 906–07.

[14]          Id. at 907.

[15]          In re Perdido Motel Group, Inc., 101 B.R. 289, 294 (N.D. Ala. 1989).

[16]          In re Sunflower Racing, Inc., 219 B.R. 587, 595–98 (D. Kan. 1998). The court described the classes as: (1) Allowed secured claims of the creditor group; (2) Allowed secured tax claims; (3) Allowed unsecured claims of the creditor group; (4) Allowed unsecured claims of general creditors; (5) Allowed unsecured claims of TRAK East; (6) Allowed stock interest. Id.

[17]          Id. at 597–99.

[18]          Id. at 597.

[19]          Id. at 597–98.

[20]          Id. at 598–99.

[21]          Id. at 597.

[22]          Sunflower Racing, 219 B.R. at 597.

[23]          Id. While the published opinion states the creditor holds a “hen” on the property, it is the author’s opinion that this is a misprint and should be lien. *Id.*

[24]          *Id.*

[25]          Id.       

[26]          *Id.*

[27]          *Id.*

[28]          Sunflower Racing, 219 B.R. at 597.

[29]          *Id.*

[30]          *Id.*

[31]          See generally In re Gramercy Twins Ass’c., 186 B.R. 112 (S.D. N.Y. 1995).

[32]          Id. at 114.

[33]          *Id.*

[34]          Id. at 115.

[35]          Id. at 117.

[36]          Id. This decision appears to be unreported, but remains important as another instance of the court allowing a secured tax claim the status of a voting class. *Id.*

[37]          Gramercy Twins, 219 B.R. at 117.

[38]          Id. at 115–16.

[39]          Id. at 117.

[40]          *Id.*

[41]          Id.

[42]          Id. at 118 (quoting In re Windsor on the River Assoc., Ltd., 7 F.3d 127, 132 (8th Cir. 1993)).

[43]          Gramercy Twins, 219 B.R. at 118.

[44]          *Id.*

[45]          *Id.*

[46]          *Id.*

[47]          “Certainly, $50,000 is not a ‘de minimis’ amount.” *Id.*

[48]          Gramercy Twins, 219 B.R. at 117–18.

[49]          Id. at 118.

[50]          *Id.*

[51]          *Id.*

[52]          *Id.*

[53]          *Id.*

[54]          Gramercy Twins, 219 B.R. at 118.

[55]          *Id.*