Connecticut General Life Insurance Company v. Hotel Associates of Tucson (In re Hotel Associates of Tucson)

Connecticut General Life Insurance Company (Connecticut General) (plaintiff) held a lien against Hotel Associates of Tucson (Hotel Associates) (debtor). A promissory note, deed of trust, and security agreement established Hotel Associates’ obligation to Connecticut General. Hotel Associates later filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code. Two plans of reorganization were proposed. A group of Hotel Associates’ general partners—Lawrence Smira, Robert Ewing, Gary Wieser, and Saliterman/Goldstein Investments (collectively, the Paragon Group)—proposed a plan under which all creditors except Connecticut General would be paid in full. Another partner, C.R.H.C. of Tucson, Inc., proposed a plan under which all creditors would be paid in full, including Connecticut General. The Paragon Group’s plan also called for a 30-day delay in payment to a class of unsecured claims. This rendered the unsecured creditors’ claims impaired—that is, altered by the reorganization plan. Under Bankruptcy Code § 1129(a)(10), confirmation of a plan required the approval of at least one impaired class. The unsecured creditors approved of the Paragon Group’s plan. The bankruptcy court confirmed the Paragon Group’s plan. Connecticut General appealed to the United States Bankruptcy Appellate Panel for the Ninth Circuit, arguing that the Paragon Group’s plan had artificially impaired the unsecured creditors for the purpose of securing the bankruptcy court’s confirmation.