Ronald W. Ziemann

1Following the final hearing on confirmation of Debtor’s Plan, held on May 1, 2007, the
Court entered an Order Respecting Confirmation of Debtor’s First Amended Plan of
Reorganization (“Order”) which deferred a final determination on confirmation of Debtor’s Plan
pending the entry of an order in the dissolution of marriage proceedings between the Debtor and
Paulette DePascal in Second Judicial District Court Case No. DM-2004-04503 (“State Court
Dissolution Proceeding”) determining the amount of attorneys’ fees, if any, Debtor would be
required to pay. See Docket # 237. An order was entered in the State Court Dissolution
Proceeding which awarded Ms. DePascal attorney’s fees in the amount of $10,000.00 and
ordered Respondent (Debtor) to pay the fees in full by December 31, 2007. (See Docket # 260,
Exhibit A). 	Debtor filed a motion seeking to modify the Plan to provide for payment of the
attorneys’ fees awarded in the State Court Dissolution Proceeding. (See Debtor’s Motion to
Determine Priority, to Clarify to Whom the Payment Should be Made on the Award of
Attorney’s Fees Ordered by the Bernalillo County Domestic Relations Court and to Modify
Debtor’s Plan of Reorganization (“Motion to Modify”) - Docket # 260). The Court denied the
Motion to Modify on January 10, 2008. (See Docket # 283).
2That section provides:
For purpose of this subsection, the condition that a plan be fair and equitable with
respect to a class includes the following requirements:
. . . .
1
UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: 	RONALD ZIEMANN, 	No. 11-05-11276 MA
Debtor.
ORDER ON CONFIRMATION OF DEBTOR’S AMENDED CHAPTER 11 PLAN
THIS MATTER is before the Court on confirmation of Debtor’s First Amended Plan of
Reorganization (“Plan”). See Docket # 167.1 The United States of America, Internal Revenue
Service; the State of New Mexico, Taxation and Revenue Department; and Paulette DePascal
each objected to confirmation of Debtor’s Plan. See Docket # 219, #220, and #221. At the
continued hearing on confirmation, Paulette De Pascal, by and through her attorney of record,
George Moore, maintained her objections to confirmation, including her contention that the Plan
violates the absolute priority rule found in 11 U.S.C. § 1129(b)(2)(C)(ii). 2 Upon review of the
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(C) With respect to a class of interests --
. . . .
(ii) the holder of any interest that is junior to the interests of such
class will not receive or retain under the plan on account of such
junior interest any property.
11 U.S.C. § 1129(b)(2)(C)(ii).
2
Plan, the ballots, and the record of this proceeding, and being otherwise sufficiently informed,
the Court finds that, while the Plan appears to violate the absolute priority rule inasmuch as the
Debtor will retain an interest in property even though the Plan does not guaranty payment of all
unsecured creditors in full, the absolute priority rule is not implicated in this case because Debtor
was not forced to proceed to confirmation under the cramdown provisions found in 11 U.S.C. §
1129(b). 	Ms. DePascal’s vote to reject the Debtor’s plan cannot be counted as she did not hold
an allowed (or temporarily allowed) claim as of the date for balloting. Consequently, there is no
rejecting, impaired class of creditors, and Debtor may proceed to confirmation under 11 U.S.C. §
1129(a). With the modifications to the plan agreed to by Debtor’s counsel at the final hearing on
confirmation, the Court will confirm Debtor’s plan.
DISCUSSION
A. 	Whether Ms. DePascal’s Vote to Reject Plan is Valid
Confirmation of a Chapter 11 plan of reorganization is governed by 11 U.S.C. § 1129,
and requires, among other things, that the plan be accepted by at least one impaired class of
claims if the plan includes impaired classes of claims. 11 U.S.C. § 1129(a)(10). Acceptance of a
plan by a class is determined as follows:
A class of claims has accepted a plan if such plan has been accepted by creditors, other
than an entity designated under subsection (e) of this section, that hold at least two-thirds
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3Rule 3018(a), Fed.R.Bankr.P. provides, in relevant part:
Notwithstanding objection to a claim or interest, the court after notice and a
hearing may temporarily allow the claim or interest in an amount which the court
deems proper for the purpose of accepting or rejecting a plan.
Rule 3018(a), Fed.R.Bankr.P.
3
in amount and more than one-half in number of the allowed claims of such class held by
creditors, other than any entity designated under subsection (e) of this section, that have
accepted or rejected such plan.
11 U.S.C. § 1126(c).
Only holders of allowed claims, or claimants whose claims have been objected to but who have
been granted temporary allowance of their claim for voting purposes, may vote to accept or
reject a Chapter 11 plan. 11 U.S.C. § 1126(a) (“The holder of a claim or interest allowed under
section 502 of this title may accept or reject a plan.”); Rule 3018(a), Fed.R.Bankr.P.3 Claims
are deemed allowed upon the filing of a proof of claim, unless a party in interest, including the
debtor, objects. 11 U.S.C. § 502(a).
In this case, Paulette DePascal filed three proofs of claim, and the Debtor filed objections
thereto. See Claims Register, Claim Nos. 9., 10., and 14.; See Docket # 203 - Debtor’s
Objections to Claims and Deadline to File Responses Thereto, filed February 9, 2007. 	Ms.
DePascal did not seek to have her claim(s) temporarily allowed for purposes of voting on the
Debtor’s Chapter 11 plan of reorganization in accordance with Rule 3018(a), Fed.R.Bankr.P.
Ballots accepting or rejecting Debtor’s Plan were to be submitted by April 20, 2007. See
Order Approving Disclosure Statement and Fixing Time for Submitting Acceptance or Rejection
of First Amended Plan and Notice of Confirmation Hearing and Notice of Deadline for Filing
Complaints Objecting to the Discharge of the Debtor (Docket # 206). Ms. DePascal voted to
reject the Debtor’s Plan. 	But at that time, because the Debtor had objected to Ms. DePascal’s
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4The Debtor’s objections to Ms. DePascal’s claims were ultimately resolved by
stipulation, but not until after balloting. (See Docket # 262 - Stipulated Order Allowing in Part
and Disallowing in Part the Claims of Paulette DePascal, entered October 19, 2007).
5See Plan, Article 1, ¶ 40, and Article 4.
6See Plan, Article 1, ¶ 15, and Article 5.
4
claims, Ms. DePascal did not hold an allowed claim, nor did she hold a temporarily allowed
claim for purposes of voting.4 Thus, Ms. DePascal’s ballots may not be counted in determining
acceptance or rejection of Debtor’s Plan. See Jacksonville Airport, Inc. v. Michkeldel, Inc., 434
F.3d 729, 731 (4th Cir. 2006) (finding that 11 U.S.C. § 1126(a) and 11 U.S.C. § 502 “allow only
holders of claims to which no party has objected to vote on Chapter 11 plans[ ]” and affirming
district court’s determination that creditor whose claim had been objected to was not permitted to
vote on debtor’s chapter 11 plan.)
B. Whether the Absolute Priority Rule Applies
Debtor’s Plan provides for the formation of the Ziemann Asset Trust, to be funded with
all of the Debtor’s dental equipment, office furnishings, the office condominium, all assets used
in the Debtor’s business, all accounts receivable, and all future income from the Debtor’s
business, until termination of the Ziemann Asset Trust5 and the Creditor’s Trust.6 The purpose
of the Creditor’s Trust is to pay the unsecured creditors in Class 7, and will be funded from the
sale of certain assets, plus $500.00 or more per month, for the first forty-eight months, plus an
additional $400.00 or more for the next twenty-four months from the Ziemann Asset Trust. See
Plan, Article 4 (providing that The Ziemann Asset Trust shall make all payments to the
Creditor’s Trust for Class Seven); and Article 5. 	The Plan provides that all assets to be
contributed to the Ziemann Asset Trust will be “irrevocably transferred to the Trustee of the
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7See Plan, Article 4, ¶ 4.8:
Upon completion of the Plan, meaning all payment to pre-petition creditors of
their allowed claims, including all payment so [sic.] the Creditor’s Trust, all
assets in the Ziemann Asset Trust shall be revested in Ronald W. Ziemann, or his
assignee. Plan, Article 4, ¶ 4.8.
Plan, Article 3, ¶ 3.9(14):
Distributions from the Creditor’s Trust [to Class 7 unsecured creditors] shall
continue until all of the assets in the Pool of Assets are distributed, or all creditors
to receive payments have filed satisfaction of claims, or after five (5) years after
confirmation whichever occurs first.
Plan, Article 6, ¶ 6.2:
The full payment, distribution and other provisions contained in the Plan relating
to each allowed claim shall be in complete satisfaction of such allowable claim . .
.
8In re Dean, 166 B.R. 949, 954 (Bankr.D.N.M. 1994)(citation omitted).
5
Ziemann Asset Trust.” Plan, Article 4.3. But once all payments from the Creditor’s Trust have
been made, the assets in the Ziemann Trust will revest in the Debtor and all claims of Class 7
creditors will be deemed satisfied.7 Ms. DePascal suggests that these provisions violate the
absolute priority rule.
Under the absolute priority rule, unless a dissenting class of unsecured creditors is paid in
full, junior interests may not receive or retain any property interest in the debtor. 8 The absolute
priority rule “is consistent with the general principle that the assets of an entity should be
distributed to pay the entities' creditors before any distribution to its equity interest holders.” In
re SLC Ltd. V, 137 B.R. 847, 850 (Bankr.D.Utah 1992)(citing In re Bryson Properties. XVIII,
129 B.R. 440, 446-47 (Bankr.M.D.N.C.1991)). “Interest” within the context of the absolute
priority rule includes an individual debtor’s ownership interest in a business he or she operates as
a sole proprietorship, which entitles the debtor to maintain control over his or her enterprise and
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9 See In re Drimmel, 135 B.R. 410, 414 (D.Kan. 1991), aff'd, Unruh v. Rushville State
Bank of Rushville, Mo., 987 F.2d 1506 (10th Cir. 1993) (noting that “‘interest’ includes the
interest of a sole proprietor in a sole proprietorship” (citing 5 U.S. Code Cong. & Admin. News
5787, 6436, 6477 (1978)) and finding that “debtors' proposed retention of control over their
businesses and right to potential future profits is “property” for the purposes of the absolute
priority rule.”).
10See Pennbank v. Winters (In re Winters), 99 B.R. 658, 663 (Bankr.W.D.Pa.
1989)(noting that the absolute priority rule is only applicable “when the proponent of the plan
seeks to ‘cram-down’ the plan under the alternative confirmation standard contained in §
1129(b) on a class that is impaired and has rejected the plan.”)(emphasis in original); In re
Greystone III Joint Venture, 102 B.R. 560, 574 (Bankr.W.D.Tex. 1989), aff'd, 127 B.R. 138
(W.D.Tex. 1990), rev'd on other grounds, 995 F.2d 1275 (5th Cir. 1991)(“[a]bsolute priority is
preserved as a prerequisite to confirmation only in the narrow circumstance of ‘cram-down,’ or
confirmation over the objection of a dissenting class of creditors, and then only from the
dissenting class down.”)(citing 11 U.S.C. § 1129(b)(2)(B) and H.R.Rep. No. 595, 95 th Cong, 1st
Sess 413 (1977)). In re United Marine, Inc., 197 B.R. 942, 948 (Bankr.S.D.Fla. 1996) (“[I]n the
context of a consensual plan, § 1129(a) contains no reference to the absolute priority rule. It
appears only in § 1129(b).”)(emphasis in original).
6
earn future profits.9
Debtor’s Plan does not ensure that unsecured creditors will be paid in full, yet the
property “irrevocably” transferred to the Ziemann Asset Trust will revest in the Debtor upon
completion of all payments called for under the Plan. These provisions appear to violate the
absolute priority rule. But the requirement that the plan satisfy the absolute priority rule is found
in 11 U.S.C. § 1129(b)(2)(B)(ii), and, therefore, only arises when there is a rejecting, impaired
class of creditors. In other words, the absolute priority rule only arises in cramdown situations. 10
Thus minority dissenting creditors cannot object to confirmation based on the absolute priority
rule. Winters, 99 B.R. at 663. Because Ms. DePascal was not entitled to vote, her rejection of
the Plan does not create an impaired, rejecting class of creditors. The absolute priority rule is,
therefore, inapplicable unless there is a rejecting, impaired class of creditors without counting
the votes of Ms. DePascal.
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11 11 U.S.C. § 1126(c); 7 Collier on Bankruptcy ¶ 1126.04 (Alan N. Resnick and Henry J.
Sommer, eds., 15 th ed. rev. 2006)( “[O]nly clams actually voted count in determining whether the
requisite majorities in number and amount are met.”)
12 No creditors in Class 6, the other impaired class, voted to accept or reject the Plan.
7
C. Whether Debtor has an Accepting, Impaired Class of Creditors
Debtor’s Plan includes the following impaired classes of claims: Class 6 - Administrative
Convenience Claims consisting of allowed unsecured claims of $1,000.00 or less and any
unsecured claimant who consents to reduce its claim to $1,000.00 or less in full satisfaction of its
claim; and Class 7 - Allowed Claims of General Unsecured Creditors. The Tally of Ballots filed
by the Debtor and supported by the ballots reflects the following votes in Class 7, disregarding
the votes of Ms. DePascal:
Dex Media 	$41,582.34 	Accept
USAA Savings Bank 	$14,000.00 	Accept
New Mexico Taxation and Revenue Dept. 	$ 5, 769.39 	Reject
In determining acceptance of classes, only creditors who vote are counted.11 Based on the
creditors who voted, and in accordance with 11 U.S.C. 1126(c), a simple majority of the eligible
creditors voting in Class 7 and holding more than two-thirds of the total claims accepted the
Debtor’s Plan. 	Debtor has, therefore, satisfied 11 U.S.C. § 1129(a)(10) with this accepting,
impaired class of claims.12
D. Other Modifications.
Based on the acceptance of an impaired class of claims and based on the Debtor’s
testimony offered at the final hearing on confirmation, Debtor’s Plan meets the requirements for
confirmation under 11 U.S.C. § 1129(a). Debtor has been making the payments called for under
the Plan since the final hearing on confirmation and the Plan; therefore, the Court finds that the
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8
Plan is feasible. 	The attorneys’ fees awarded as part of the State Court Dissolution proceeding
do not render the Plan infeasible. 	As a condition to confirmation, the Debtor represented at the
final hearing on confirmation that he agreed to certain modifications requested by the State of
New Mexico, Taxation and Revenue Department (“NMTR”), and that he agreed to delete those
portions of the Plan, found mainly in connection with Class 8, that attempt to address potential
post-petition domestic relations claims that may arise from the State Court Dissolution
proceeding. 	Debtor is required to make these modifications to the Plan as a condition to
confirmation.
In addition, NMTR objected to the strict default provisions contained in Article 6,¶ 6.6,
which provides generally, as follows:
Debtor has a 15 day grace period within which to make any payment provided under the
plan; if payment is not made within 15 days, claimant(s) are required to give written
notice of default to the Debtor and to Brian Rowe, as Trustee of the Ziemann Asset Trust
with 15 days to cure. However, either the Debtor or the Trustee may cure the default and
reinstate the plan within 30 days after the 15 day cure period by tendering the full amount
due, plus interest, plus a 5% penalty.
No testimony was offered to show that the default provisions were unreasonable per se. In fact,
creditors voted to accept them.
With the concessions agreed to by the Debtor as outlined above, the Court finds that the
Plan is confirmable.
WHEREFORE, IT IS HEREBY ORDERED, that the Debtor shall submit an order
confirming plan, getting approval as to form from all objecting parties, within fifteen days.
_______________________________________________
MARK B. McFEELEY
United States Bankruptcy Judge
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9
Date entered on docket: February 1, 2008
COPY TO:
Louis Puccini, Jr 	James C. Jacobsen
Attorney for Debtor 	Attorney for NM Taxation and Revenue Department
PO Box 30707 	111 Lomas NW, Suite 300
Albuquerque, NM 87190-0707 	Albuquerque, NM 87102
George M Moore 	Manuel Lucero
Attorney for Paulette DePascal 	Assistant U.S. Attorney
PO Box 216 	PO Box 607
Albuquerque, NM 87103-0216 	Albuquerque, NM 87103
Office of the United States Trustee
PO Box 608
Albuquerque, NM 87103
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