The opinion of the court was delivered by: JOHN LIFLAND, Senior District Judge
Appellants Joseph M. Lisanti, Jr., Rosemarie Lisanti, Lisanti
Realty of Arizona, Inc., Lisanti Realty Corp., Lisanti
Enterprises, LLC, Texas Trucking Corp., JL Trucking, LLC, New
Jersey Trucking Corp., and Arizona Freight Haulers, Inc.
(collectively, the "Non-Debtor Entities") appeal from the May 17,
2004 Order Confirming Second Amended Joint Plan of Liquidation
(the "Plan") entered by the Honorable Novalyn Winfield, U.S.B.J. This appeal
disputes certain evidentiary determinations of the bankruptcy
judge as well as the legal sufficiency of the Plan under the
applicable provisions of the Bankruptcy Code ("Code"). For the
reasons set forth below, the Order of the Bankruptcy Court will
A. Procedural History and General Facts
This appeal arises in connection with the Debtors' Chapter 11
liquidation proceeding pending in the Bankruptcy Court. Debtors
filed voluntary petitions for relief under Chapter 11 of the Code
on November 20, 2002. These cases were subsequently consolidated
for joint administration. On November 29, 2002, the United States
Trustee for the District of New Jersey ("Trustee") appointed an
Official Committee of Unsecured Creditors pursuant to §§ 1102(a)
and (b) of the Bankruptcy Code.
The Debtors were wholesale distributors of Italian specialty
foods and food-related products to, among others, food retailers
and restaurants. The Non-Debtor Entities operated the
distribution centers and delivered the specialty foods and
related products to the Debtors' customers.
Joseph M. Lisanti, Jr. is the former President of Lisanti
Foods, Inc. Mr. Lisanti and his sister, Rosemarie Lisanti
("Lisantis"), are the sole officers, shareholders, and/or members of each of the Non-Debtor Entities.
Lisanti Realty of Arizona, Inc., Lisanti Realty Corp., and
Lisanti Enterprises, LLC, own or had owned certain warehouse
facilities and offices located in Arizona, Texas, and Totowa, New
By Order dated January 21, 2003, the Bankruptcy Court, inter
alia, (1) approved the sale of substantially all of the assets
of Lisanti Foods, Inc. to Ferraro Foods, Inc. and further
approved the auction sale of any remaining assets of Lisanti
Foods, Inc. in Totowa, and (2) approved the sale at auction of
all of the remaining assets of Lisanti Foods of Arizona, Inc. and
Lisanti Foods of Texas, Inc. to the highest bidder. On January
30, 2003, upon the Trustee's motion, Jay L. Lubetkin was
appointed as Chapter 11 Trustee with regard to the liquidation
and distribution of the Debtors' consolidated estate.
B. Second Amended Joint Plan of Liquidation
The Official Committee of Unsecured Creditors and the
Chapter 11 Trustee filed the Plan and related Disclosure Statement in the
Bankruptcy Court on October 14, 2003. On December 17 and 18,
2003, Judge Winfield heard argument on whether the proposed Plan
satisfied the requirements of the Code. On April 13, 2004, the
Bankruptcy Court conducted further hearings on confirmation of
the Plan, during which it detailed reasons for finding that the
Plan should be confirmed. This decision was memorialized in the May 17, 2004
Order appealed from in the present matter.
Bankruptcy Court Order Confirming the Plan
This Court has reviewed Judge Winfield's April 13, 2004 oral
decision confirming the Plan. It is evident from the transcript
that the bankruptcy court considered Appellants' objections to
confirmation. The Bankruptcy Court acknowledged that the burden
is on the plan proponents to prove that all the applicable
provisions of 11 U.S.C. § 1129 have been satisfied. (Appendix to
Brief of Appellees, Exh. 1, at 4 ll. 5-10) (citing In re Greate
Bay Hotel & Casino, Inc., 251 B.R. 213 (D.N.J. 2000)). In
reaching her decision, Judge Winfield relied on the testimony of
the Chapter 11 Trustee, accountant Bernard Katz (who testified as
to how consolidation of the estates would inure to the economic
benefit of creditors), and the documentary evidence. (Appellees'
Appx, Exh. 1, at 4 ll. 111-5).
The standard of review to be applied by a district court
reviewing a ruling of a Bankruptcy Judge is determined by the
nature of the issues presented on appeal. Legal conclusions of
the Bankruptcy Court are subject to de novo or plenary review.
Donaldson v. Bernstein, 104 F.3d 547, 551 (3d Cir. 1997);
Chemetron Corp. v. Jones, 72 F.3d 341, 345 (3d Cir. 1995); In re
Carretta, 220 B.R. 203, 210 (D.N.J. 1998). However, the factual
determinations of the bankruptcy court are not to be set aside
unless "clearly erroneous." Fed.R.Bankr.P. 8013 (stating
that "[f]indings of fact, whether based on oral or documentary
evidence, shall not be set aside unless clearly erroneous");
Chemetron Corp., 72 F.3d at 345; In re Indian Plans Assocs.,
Ltd., 61 F.3d 197, 203 (3d Cir. 1995). This standard requires
the district court to "give due regard to the opportunity of that
court to judge, first-hand, the credibility of the witnesses."
Fellheimer, Eichen, & Braverman, P.C. v. Charter Techs., Inc.,
57 F.3d 1215, 1223 (3d Cir. 1995); Fed.R.Bankr.P. 8013.
Where a matter presents mixed questions of law and fact, the
reviewing court will apply the relevant standard to each
component of the issue. Chemetron, 72 F.3d at 345.
The Bankruptcy Court's exercise of discretion is reviewed "for
abuse thereof." In re Prof'l Ins. Mgmt., 285 F.3d 268, 283-84
(3d Cir. 2002); In re Trans World Airlines, Inc., 145 F.3d 124,
132 (3d Cir. 1998).
Appellants present the following issues in this appeal:
1. Whether the Bankruptcy Court erred in admitting into
evidence documents and testimony of Appellees' expert witness in
connection with the proposed confirmation of Appellees' Second
Amended Joint Plan of Liquidation. 2. Whether confirmation of the Plan was in error because of
defects in the solicitation of ballots for acceptance or
rejection of the Plan and further defects in the computation and
certification of the ballots received.
3. Whether Plan confirmation was in error because the Plan did
not meet the prerequisites for substantive consolidation of the
Debtors. Alternatively, whether the Plan provides adequate means
for its implementation through substantive consolidation.
4. Whether confirmation of the Plan was in error because the
Disclosure Statement contained inadequate information.
5. Whether confirmation of the Plan was in error because
Appellees failed to comply with the required elements for plan
confirmation found in 11 U.S.C. § 1129(a).
6. Whether confirmation of the Plan was in error because the
Plan failed to provide for payment of all administrative claims
on the Effective Date.
7. Whether confirmation of the Plan was in error because the
Plan vested the liquidating trustee and the oversight committee
with broad powers not subject to the supervision of the
I. Overview of 11 U.S.C. § 1129
According to a leading bankruptcy treatise:
Confirmation of a plan of reorganization is the
statutory goal of every chapter 11 case. Section 1129
of the Bankruptcy Code provides the requirements for
such confirmation, containing Congress's minimum
requirements for allowing an entity to discharge its
unpaid debts and continue its operations. [Section
1129(a)] contains thirteen paragraphs, each of which
contains a separate requirement that must be met in
order to confirm the plan.
COLLIER ON BANKRUPTCY ¶ 1129.01. Therefore, the Code's statutory framework governs the
Bankruptcy Court's decision to confirm a plan. In some places, §
1129 provides its own substantive requirements while in other
places § 1129 more generally requires plan compliance "with the
applicable provisions of [title 11]." Consequently, review of a
proposed plan for compliance requires consideration of both §
1129 and other relevant sections of the Code. The following
review of the Bankruptcy Court's Order distinguishes between
Appellants' objections based on purported non-compliance with §
1129 and objections based on non-compliance with other applicable
title 11 provisions.
A. Substantive Consolidation: Background and Prerequisites
Substantive consolidation results in the pooling of the assets
of, and claims against, two or more entities, thereby satisfying
liabilities from the resultant common fund, eliminating duplicate
claims, and combining the creditors of the two entities for
purposes of voting on reorganization plans. In re Morfesis,
270 B.R. 28, 31 (D.N.J. 2001). The power to order substantive
consolidation of bankruptcy estates is within the Bankruptcy
Court's equitable powers under § 105 of the Code. See Fed.
Deposit Ins. Corp. v. Colonial Realty Co., 966 F.2d 57, 59 (2d
Cir. 1992); see also In re Stone & Webster, Inc.,
286 B.R. 532, 539 (D. Del. 2002); 2 COLLIER ON BANKRUPTCY ¶ 105.09
("the authority of a bankruptcy court to order substantive consolidation derives from its general
discretionary equitable powers."). "As an equitable remedy,
substantive consolidation is to be used to afford creditors
equitable treatment and thus may be ordered when the benefits to
creditors exceed the harm suffered." In re Worldcom Inc., No.
021-3533, 2003 WL 23861928, at *35 (Bankr. S.D.N.Y. Oct. 31,
2003) (citing In re Augie/Restivo Baking Co., Ltd.,
860 F.2d 515, 518-19 (2d Cir. 1988)).
The party requesting substantive consolidation must show: (1) a
substantial identity between the entities to be consolidated; (2)
that consolidation is necessary to avoid harm or to achieve some
benefit; and (3) in the event that the creditor shows harm, that
the benefits of consolidation "heavily" outweigh the harm. In re
Morfesis, 270 B.R. at 31 (citing In re Auto-Train Corp.,
810 F.2d 270, 276 (D.C. Cir. 1987)).
With respect to whether the Bankruptcy Court properly
considered these factors, there is ample evidence in the record
to uphold the Bankruptcy Court.
Judge Winfield found that the proponents had proved a
substantial identity between the parties to be consolidated,
based on the testimony of the Trustee and Mr. Katz. As the court
summarized the Trustee's testimony:
Mr. Lubetkin testified that without contradiction
that all three debtors have the same officers, same
directors and shareholders. They conducted the same general business operations under
very similar names. His review of inter-company
transactions revealed that inter-company dealings
were done without the usual corporate formalities . . .
no promissory notes were prepared, and no corporate
resolutions reflected either the borrowing or the
(Id., at 15 ll. 8-17.).
In further support of the identity of interest among the three
debtors, Mr. Katz testified, for example, that the debtors did
not charge each other for services rendered and all accounts
receivable were billed from the New Jersey debtor's facility.
(Id., ll. 18-21.). After reviewing further testimony from the
Trustee and Mr. Katz, the court found that "members of the
Creditors' Committee and other vendors . . . viewed the debtors
as a single entity when extending credit terms." (Id., at
16-17.). The ...