In re Bloomingdale Partners

Bloomingdale Partners (Bloomingdale) (debtor) filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. John Hancock Mutual Life Insurance Company (Hancock) was Bloomingdale’s sole secured creditor. John Zarlenga and Jean Zarlenga (creditors) held an impaired unsecured claim based on a state common-law cause of action against Bloomingdale for the tort of nuisance, or interference with their quiet enjoyment of property. The plan of reorganization submitted by Bloomingdale was opposed by both Hancock and the Zarlengas. The proposed plan initially placed the Zarlengas in the same class with the other unsecured claims, which included two creditors with contract claims against Bloomingdale. These two creditors’ claims, which shared the same priority as the Zarlengas’ claim, were also impaired. Under Bankruptcy Code § 1129(a)(10), confirmation of a plan required the acceptance of at least one impaired class. With the Zarlengas in a position to veto the other unsecured creditors’ acceptance, Bloomingdale revised the plan to place the Zarlengas in their own class. Hancock moved to strike the modified plan and dismiss the case, arguing that Bloomingdale had engaged in artificial classification of claims for the purpose of securing approval of the plan. Bloomingdale countered that the Zarlengas and the other unsecured creditors had different motivations in filing their claims.