In re Mangia Pizza Investments

Mangia Pizza Investments (Mangia) (debtor) operated a number of pizza restaurants. Mangia filed for reorganization under chapter 11 of the bankruptcy code. HEB Grocery Company (HEB) (creditor) had a pre-petition lease with Mangia. As the debtor in possession, Mangia rejected the lease, and HEB received a claim against the estate for unpaid rent. HEB’s unpaid-rent claim was secured by Mangia’s security deposit, which covered the full amount due to HEB and remained in HEB’s possession. Mangia filed a reorganization plan with the bankruptcy court. Before the court approved Mangia’s plan, Cloud Cap (creditor) purchased a claim from one of Mangia’s creditors and filed a competing disclosure statement and reorganization plan. Cloud Cap’s competing proposal altered HEB’s secured claim so that Mangia would pay the unpaid-rent claim with separate funds, rather than from the security deposit. Additionally, Cloud Cap’s proposal provided that Mangia would pay HEB’s secured claim within 30 days of the plan’s effective date, rather than as an instant setoff against the security deposit on the effective date. According to Cloud Cap, this delay in HEB’s payment made HEB an impaired creditor. As an impaired creditor, HEB would be able to vote to confirm or reject Mangia’s reorganization plan. Mangia objected to Cloud Cap’s proposal, arguing that HEB’s claim was unimpaired under both plans. Mangia argued that Cloud Cap’s proposal for a 30-day delay on HEB’s claim was an artificial impairment designed to give HEB voting rights.