Norwest Bank Worthington v. Ahlers (In re Ahlers)

James and Mary Ahlers (debtors) operated a family farm in Minnesota. The Ahlerses obtained loans from lenders including Norwest Bank Worthington (creditors) and granted the lenders security interests in the Ahlerses’ farmland, machinery, crops, livestock, and farm proceeds. In November 1984, the Ahlerses defaulted on their loan payments. Norwest filed a replevin action in Minnesota state court to obtain possession of the Ahlerses’ farm equipment. However, two weeks later, the Ahlerses filed a Chapter 11 petition, and the Bankruptcy Code’s automatic stay stayed the replevin action. Norwest and the other lenders then sought relief from the automatic stay. The bankruptcy court granted the requested relief, and the district court affirmed after finding that the Ahlerses’ proposed reorganization plan was unfeasible. This conclusion was based on the lenders’ argument that, under 11 U.S.C. § 1129(b)(2)(B)(ii), a plan could not be confirmed over lenders’ legitimate objection to any reorganization plan that allowed the Ahlerses to keep an interest in the farm property. Section 1129(b)(2)(B)(ii)’s absolute-priority rule provides that a dissenting class of unsecured creditors must be provided for in full before any junior class may receive or retain any property under the debtor’s reorganization plan. According to the lenders, the absolute-priority rule prevented the Ahlerses from retaining an equity interest in the farm because that interest was junior to any creditor’s unsecured claim. The Eighth Circuit reversed the district court, concluding that even though the Ahlerses’ plan violated the absolute-priority rule, a plan could still be confirmed if the Ahlerses promised to contribute “money or money’s worth” to the reorganized entity in the form of yearly contributions of labor, experience, and expertise in farm management. The United States Supreme Court granted certiorari.