RIC (Austin) LLC

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION
In re:
RIC (AUSTIN), LLC,
Debtor.
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Case No. 24-10264-cgb
Chapter 11
PANACHE DEVELOPMENT &
CONSTRUCTION, INC., et al.,
Plaintiffs and Counter-Defendants,
v.
ROMSPEN MORTGAGE, LP,
ROMSPEN (REOMASTER)
HOLDINGS, INC.,
Defendants and Counter-Plaintiffs.
v.
Adam Zarafshani, an individual,
Third-Party Defendant.
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Adv. No. 24-01061-cgb
COMBINED OPINION ON PLAN CONFIRMATION
AND ADVERSARY PROCEEDING
Dated: May 21, 2026.
__________________________________
CHRISTOPHER G. BRADLEY
UNITED STATES BANKRUPTCY JUDGE
________________________________________________________________
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On February 26, 2026, RIC (Austin), LLC (the “Debtor”) filed its Combined
Disclosure Statement and Second Amended Chapter 11 Plan (the “Plan”).1 The
Court held a hearing on the Plan, along with trial of the related adversary
proceeding,2 from April 22, 2026 to April 28, 2026. At the conclusion of the hearing,
the Court took confirmation and the adversary proceeding under advisement.
In this opinion, the Court explains why it will confirm the Plan, deny the
Panache Parties’ claims for equitable subordination and recharacterization as well
as their objection to the Romspen Parties’ claims, and find a breach of the
Subordination and Intercreditor Agreement contract by AFMN. The Court will
withhold a ruling on remedies for breach of contract at this time pending further
briefing and proceedings.
Summary/Preliminary Statement
Because it is easy in a case of this complexity to “lose the forests for the trees,”
and because the Court is producing this opinion under some time pressure but feels
that a ruling on a case as vigorously litigated as this deserves a fulsome explanation,
the Court includes this preliminary statement intended to provide an overview of the
Court’s view of this case as a whole together with some facts and observations that
apply to all of the findings below.
This matter has been on the Court’s docket, and has been a lot of work for all
of the attorneys as well as the Court, for well over a year. Although the Court has
had to make this ruling fairly soon after trial because the estate is running out of
money, there is nothing in this ruling that has not been considered carefully and at
length based on everything in the record and all of the manifold arguments made by
the parties. Below, the Court has tried to explain its views as to the most substantive
arguments, but in any case, even arguments that have not been specifically addressed
here have, in fact, been considered carefully, and this ruling disposes of them.
The group that the Court is going to call the Panache Parties (or sometimes
“Mr. Zarafshani,” since they are all effectively his) are going to lose on the key
issues, but not for want of effort. They have left no stone unturned. They brought a
very large number of theories (some now abandoned) and engaged in a remarkably
broad discovery, which, even over forceful objection, the Court largely permitted.
1 	In re RIC (Austin), LLC, No. 24-10264 (the “Main Case”), ECF No. 288 (Plan).
2 	Panache v. Romspen (In re RIC (Austin), LLC), Adv. No. 24-01061 (the “Adversary
Proceeding”).
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Ultimately, they tried this case with a large team of skilled and experienced and well-
prepared counsel, airing many of Romspen’s internal documents, cross-examining
numerous high-ranking executives at length, and so on.
This case is about a troubled commercial development in East Austin
sometimes called the Motorola site. Romspen had loaned a large amount of money
to this development, under the name Zen Garden, before a prior bankruptcy, in which
Mr. Adam Zarafshani was also involved as part owner and developer.
In the Zen Garden bankruptcy, in order to avoid a lengthy court fight about
allegations Mr. Zarafshani brought that were notably similar to those brought here,
the parties reached a deal pursuant to which Mr. Zarafshani and Romspen would
split the equity in a new ownership entity, Romspen’s existing debt would be prior
to Mr. Zarafshani’s existing debt, and construction debt funded by either Romspen
or another lender would come in at higher priority than either.
Fundamentally, this case is about Mr. Zarafshani trying to get out of the deal
he made back in the Zen Garden bankruptcy. That deal has not worked out well for
either party, and the property remains in sad shape to this day despite the immense
sums that have been sunk into it.
As noted, the Zen Garden deal put Mr. Zarafshani’s equity interest, as well as
the debt owed him, junior to a very large chunk of Romspen debt as well as new
construction debt to be incurred. In other words, he would only come into the money
if the project was successful enough at least to pay Romspen’s existing debt and the
construction loan back.
Romspen itself ended up funding the construction; the parties were never able
to bring in another lender, in part because the project, and even the plans for the
project, were never in good enough shape. (The Panache Parties claim Romspen
prevented other lenders from coming in, but the Court did not find this claim
credible. 3 ) In 	any 	case, the new 	construction 	debt 	was 	incurred: 	Romspen
3 	Much credible testimony in the record demonstrates that there were numerous bars to
financing, including the condition of the property and the lack of detailed budgets, and most
of the bars were due directly to the Panache Parties. Even Mr. Weldon indicated Romspen’s
support of financing. Adversary Proceeding, ECF No. 187, Trial Tr. (Day 2, April 23, 2026)
at 107:6-9 (“Was RMLP supportive of obtaining third-party financing so that -- as set forth
in the binding term sheet? MR. WELDON: Yes.”). See also id. at 13:12-16 (third-party
lender would want the information Romspen was requesting but had not received, “if not
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infused more than $37 million in additional funds into the property, largely spent at
Mr. Zarafshani’s discretion with little oversight and little demonstrable progress,
including no ability to attract any actual tenants.4 Despite this new money loaned
and the passage of time, the property remained far away from the goals the parties
had for it. Romspen understandably lost faith in the project and asked Mr. Zarafshani
to curtail spending sharply and ultimately to step back from his construction role
while preserving other roles, for instance in marketing the project. Faced with
Romspen’s decision to remove him from his role in construction of the project, he
walked from the remaining roles that Romspen wanted him to play.5
Ultimately one of his affiliates filed this involuntary bankruptcy case.
Panache/Zarafshani didn’t put any money on the table to make the case a success or
to preserve the bankruptcy estate’s property, however—they left that, again, to
Romspen, which funded another $5+ million into this bankruptcy case, money that
was used to hire estate professionals who have managed the property and proposed
a plan of reorganization. They held an auction for the equity in the project. The
Panache Parties chose not to participate in that auction, but Romspen again put its
money into the plan and won the auction.
Despite Romspen’s immense investments that have not shown much by way
of results, Mr. Zarafshani strenuously argues that Romspen’s fiduciary duty required
it to infuse another $37 million or more into the property. In filing the adversary
proceeding against Romspen and in opposing confirmation of the Debtor’s plan, Mr.
Zarafshani seeks to put his interests above Romspen’s interests—both new and old.
He and his affiliate entities and their large legal team have litigated to that effect,
throwing up a large number of theories and angles to try to overturn the effect of the
legal arrangements to which Mr. Zarafshani knowingly consented and to unseat the
realities of this failed project.
more”); ECF No., 191, Trial Tr. (Day 4, April 27, 2026) at 7-11 (third party financing
unlikely without information).
4 	Adversary Proceeding, ECF No. 187, Trial Tr. (Day 2, April 23, 2026) at 122:7-13 (“So by
the time early 2022 came about, had you gotten to any more level of certainty as to when
space would be available at FH&J to be available for leasing? MR. WELDON: We had
brought on more people into the team, and they all came to the same conclusion, that we
didn’t have any certainty as to the dates that we would be able to get this property ready for
leasing.”). See also id. at 142:7-23 (lack of completion estimates, meeting expectations
concerning leasing, resolution of steel and foundation issues).
5 	See generally Adversary Proceeding, ECF No. 187, Trial Tr. (Day 2, April 23, 2026) at
170:25-177:9-76.
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As with most trials, the Court came into this one not knowing what to expect.
The parties’ statements of facts and allegations left a very wide gulf between them.
The stories they told were very, very different. Both were reasonably plausible. The
Court had taken each party to task at various points in the litigation, but it also
thought both teams of lawyers would do an excellent job (and that proved correct).
Still, the Court didn’t know which story was likely to be borne out once it had the
facts before it, once it had heard from witnesses, once it had scrutinized exhibits.
But in the end, the Court came away with a very firm conviction that on all of
the core issues, Romspen and the Debtor must prevail.
The plan is certainly confirmable, and the Court will confirm it. Mr. Milligan,
his team, and his lawyers have steered the Debtor through a difficult course. The
Court credits their testimony that they tried to obtain consensus, that they gave
Panache every chance to participate more actively in this proceeding, and that they
sought the best and most neutral outcome they could for the benefit of this estate.
They didn’t bring the difficulties into this case—and of course it was actually
Panache-affiliated parties who filed the bankruptcy case in the first place—but they
did their best to untangle those difficulties sufficiently to get this plan confirmed and
reach a workable resolution for the estate.
The Court has dealt with legal arguments and made factual findings below,
but as a matter of practicality it is worth noting that none of the Panache Parties
sought to fund this case, to keep the property taken care of as this case dragged on—
nor did they bid on the equity at the auction that was held. In that vacuum, Romspen
stepped in and funded the case and allowed Mr. Milligan and his team to do what
was necessary to bring this case to a successful conclusion without significant
interference.
A theme of the Court’s holding on confirmation as well as on the adversary
proceeding is that, frankly, Romspen has not behaved nearly as aggressively as it
probably could have. In my view, from the time of the Zen Garden bankruptcy
through its behavior in this bankruptcy, it has erred on the side of caution. Not with
every one of its internal emails—but with respect to its actual actions. It inarguably
funded a large amount of money into this project, and furthermore, trusted a great
deal in Mr. Zarafshani’s discretion as contractor. It finally took steps to rein in the
pace of funding and to put him in a different role, but he is the one who stepped away
from the project entirely and ultimately placed the Debtor into an involuntary
bankruptcy case. It was then Romspen who stepped up to fund that bankruptcy case,
but even there, it did not insist on having a stranglehold on the outcome of the case—
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which is common with debtor-in-possession financing when no one else steps up. It
permitted an auction and didn’t even demand that its DIP loan be repaid up front in
the auction.
The Court believes that Romspen ultimately behaved fairly to Mr. Zarafshani
and his entities under the actual facts and circumstances, in fact going out of their
way to give more chances for participation, and for success, at every stage of this
relationship, than the Court would expect. In fact, it would be grossly inequitable for
Mr. Zarafshani to win this lawsuit or prevent confirmation of the proposed plan
given his profoundly subordinate position, the amount of funding that Romspen has
put into this project, and the agreements that Mr. Zarafshani made, which include
his undertaking significant financial risks that have unfortunately now been realized.
Accordingly, the Court will confirm the plan, deny the Panache Party’s claims, and
grant most of Romspen’s claims.
The Court found all of the Romspen witnesses to be credible. Take Mr.
Weldon, for instance. Within Romspen, he was apparently the pro-Zarafshani voice,
and the Panache Parties have picked numerous parts of his emails and made great
use of them. And yet even his contemporaneous emails reflect an acknowledgement
that the project had not progressed as anticipated. In addition, the Court found his
testimony credible that he got carried away at times in those days (when he also had
gone/was going through significant personal difficulties) and that some of his
correspondence reflects heated rhetoric and loss of perspective, not considered
judgment.6
There are other intemperate statements by Romspen executives that have been
pointed out and used very actively by the Panache Parties. But—looking beyond the
parts cherry-picked by the highly skilled litigators for the Panache Parties—what the
Court sees from its review of these emails as a whole, together with the extensive
testimony received at trial, was a team that was very actively and seriously
discussing what to do with a project that had been problematic for a long time. The
intemperate remarks were in the context of lengthy exchanges about the project,
about who should be believed and where the project really stood. Ultimately, the
Court believes these exchanges reflect good faith decision-making. If there really
had been some plot—any pre-arranged inequitable design of any sort—then complex
and passionate emails like these would be unlikely to exist: The emails show that the
course of action was anything but a fait accompli. To the contrary, it was an active
topic of discussion being weighed within this organization. The fact that there may
6 	Adversary Proceeding, ECF No. 187, Trial Tr. (Day 2, April 23, 2026) at pages 167:3-169:17.
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have been frustration or even disdain for Mr. Zarafshani does not alter this fact. In
fact, certain of his skills were recognized and he was offered an important ongoing
role (which he refused) even after Romspen didn’t want to entrust construction to
him anymore.
Finally, as for the fact that Romspen’s liquidity and the macroeconomic
climate of the time was a factor in its decision-making: A lender cannot and does not
have to ignore its own financial constraints in making decisions, even it also holds
and controls an equity interest through which it has fiduciary duties to another party.
The evidence was that Romspen had sufficient liquidity and in fact did continue
paying a significant amount into this project even once it began trying to impose
more controls on Mr. Zarafshani’s spending.7 These constraints were not the reason
the Project failed.
This goes to the broader apparent view of the Panache Parties, which was that
Romspen, to discharge its duties, had to pour much more money into this property,8
after already pouring more than $37 million dollars into the property with what it
very 	reasonably 	considered 	to 	be 	far-below-expectation 	results. 	As 	already
mentioned, my view is that Romspen, probably because of its litigious history with
Panache/Zarafshani and perhaps also Mr. Zarafshani’s perceived centrality to the
success of this project, went above and beyond, funding this project freely for a
lengthy period and, in bankruptcy, giving the Debtor a freer hand, than it probably
would have in a truly arm’s length deal (in other words, even if it hadn’t owed
fiduciary duties).
A final preliminary thought comes in the form of a couple of inter-related
questions: What progress did Panache/Zarafshani make with the $37 million that
Romspen poured into the Debtor in the construction loan? Was there a workable plan
for this property? It seems like an obvious point to raise. Romspen’s witnesses
consistently 	and 	convincingly 	pointed 	to 	the 	perceived 	lack 	of 	a 	plan 	or
demonstrable progress in explaining their actions. Yet the Panache Parties put up
7 	See, e.g., Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 65:20-
24; Trial Tr. (Day 5, April 28, 2026) at 49:24-25.
8 	Adversary Proceeding, ECF No. 192, Trial Tr. (Day 5, April 28, 2026) at 182:6-17 (“THE
COURT: How much -- I mean, so they put $37 million into this project from that time period,
which seems to me like a lot of money, and they -- how much more – what’s the evidence
for how much more they had to spend to have discharged their fiduciary duties? MS.
CURTIS: So I believe there were emails from Mr. Weldon among the partners. And I don’t
have it in front of me. But there was an email saying, essentially, you know, there’s -- we
need, essentially, $37 million more, to $40 million more, to complete the project”).
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surprisingly little convincing evidence on this point. As discussed below, Mr.
Zarafshani’s testimony was not generally credible, but in any event he didn’t really
have much to say on this point aside from generalities. The absence is perhaps telling.
Jurisdiction and Authority
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and
1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). Venue is proper
under 28 U.S.C. §§ 1408(1), 1409(a) and the Order of Reference of Bankruptcy
Cases and Proceedings entered by the District Court for the Western District of
Texas on October 4, 2013. The Court has final adjudicatory authority because all
parties consented to the Court’s resolution of the Adversary Proceeding, and
confirmation of plans of reorganization is purely a matter of bankruptcy law and
does not require the resolution of any matter similar to “the stuff of the traditional
actions at common law tried by the courts at Westminster in 1789.”9
Background and Procedural History
This case began as an involuntary chapter 7 case filed by the petitioning
creditor, 	Panache 	Development 	& 	Construction, 	Inc. 	(“Panache”), 	an 	entity
controlled by Adam Zarafshani. 10 It is the second bankruptcy proceeding filed
related to a large commercial redevelopment project at the old Motorola site in
Austin, Texas (the “Project”).11 The first case, In re 3443 Zen Garden, LP, was filed
as an involuntary petition in March of 2020 and was later converted to a voluntary
case under chapter 11 (the “Zen Garden Case”).12 In that case, Romspen Mortgage
Limited Partnership (“Romspen” or “RMLP”), the senior lender, filed a secured
claim for over $96 million.13 Panache, the general contractor for the project, filed a
claim for over $11.8 million, which included a secured claim of over $5 million.14
9 	Stern v. Marshall, 564 U.S. 462, 484 (2011) (quoting Northern Pipeline Co. v. Marathon
Pipe Line Co., 458 U.S. 50, 90 (1982) (Rehnquist, J., concurring in judgment)).
10 	Main Case, ECF No. 1 (Involuntary Petition); Adversary Proceeding, ECF No. 190, Trial Tr.
(Day 3, April 24, 2026) at 19:23-20:1 (“Q All right. 	And who owns Panache? A I do. Q
Okay. And you control Panache, correct? A Correct.”).
11 	In re 3443 Zen Garden, LP, Case No. 20-10410 (plan confirmed on January 2, 2021 and
closed on August 23, 2022).
12 	In re 3443 Zen Garden, LP, Case No. 20-10410 (plan confirmed on January 2, 2021 and
closed on August 23, 2022).
13 	In re 3443 Zen Garden, LP, Case No. 20-10410, Claim No. 14-1.
14 	In re 3443 Zen Garden, LP, Case No. 20-10410, Claim No. 22-1.
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During the Zen Garden Case, Panache and several other creditors filed an
adversary proceeding seeking equitable subordination of Romspen’s claim and the
limitation of Romspen’s credit bid rights in an upcoming sale of the Project.15
Ultimately, Romspen and Panache settled their dispute and Romspen credit bid $45
million of its claim to purchase the Project.16
The settlement between Romspen and Panache led to the creation of RIC
(Austin).17 In the term sheet documenting the settlement (the “Binding Term Sheet”),
Romspen and Mr. Zarafshani split ownership of the Debtor but agreed that Romspen
would have ultimate control and decision-making authority.18 In keeping with this
structure, the Debtor was formed and took ownership of the Project.19 Around the
same time, Romspen formed Romspen (Reomaster) Holdings, Inc. (“Reomaster”) to
hold its 75% equity interest and Mr. Zarafshani formed Vesta Texas, LLC (“Vesta
Texas”), which is controlled by Mr. Zarafshani and his wife, to hold his 25% equity
interest in the Debtor. 20 The Binding Term Sheet included various other provisions,
including Romspen’s agreement to forebear on seeking to collect on its guarantee
from Mr. Zarafshani21 and both parties’ agreement that they would have fiduciary
duties to one another,22 a fact that the Panache Parties have averted to many times in
this litigation.23
15 	Austin Glass & Mirror, Inc. v. Romspen Mortgage Ltd. P’ship (In re 3443 Zen Garden, LP),
Adv. No. 20-01048, ECF No. 1.
16 	In re 3443 Zen Garden, LP, Case No. 20-10410, ECF No. 278 (Order authorizing sale of the
Project to Romspen through $45,000,000 credit bid).
17 	Debtor Ex. 1, ¶ 1.1.
18 	Panache Ex. 324 ¶ 4 (“The equity interests of the New Owner will be: (a) 74% owned
(whether directly or indirectly) by an entity exclusively owned and controlled by the Lender;
(b) 24% owned (whether directly or indirectly) by an entity exclusively owned and controlled
by Zarafshani or an estate-planning trust exclusively controlled by Zarafshani (“Zarafshani
Owner Entity”) and (c) 2% owned by an entity as the managing member, general partner
and/or other control equity holder of the New Owner (“Managing Entity).”) (Binding Term
Sheet). Ultimately, it appears the parties split ownership 75%/25%; Ex. 54 (RIC (Austin)
LLC agreement signed by Reomaster as managing member and Mr. Zarafshani on behalf of
Vesta Texas as the “Zarafshani Member”).
19 	Panache Ex. 501, ¶¶ 2.1, 2.4 (RIC (Austin) LLC Agreement).
20 	Adversary Proceeding, ECF No. 190, Trial Tr. (Day 3, April 24, 2026) at 20:2-3 (“Q And
you control Vesta Texas, correct? MR. ZARAFSHANI: My wife and I do, yes.”); Main Case,
ECF No. 288 ¶ 1.1 (Plan).
21 	Panache Ex. 324 ¶ 17.
22 	Panache Ex. 324 ¶ 6.
23 	The Binding Term Sheet also states that “Romspen, Zarafshani and Panache shall globally,
generally and specifically work together in good faith and with the utmost commercially
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In reviewing this agreement, it is clear that all parties were aware of the
potential conflicts in their relationships—Romspen with a hand as both lender and
owner (in fact, controller of the owning entity); Mr. Zarafshani with roles as part
owner, as creditor, and as contractor. The Panache Parties essentially predicate their
whole case on the notion that Romspen abused its dual position and emphasizes the
scrupulousness required when conflicts are involved. Indeed, the Court agrees that
heightened scrutiny is required and accordingly considers their claims carefully
below. But the Court also notes that the conflicts must be viewed within the context
of an agreement freely entered into between sophisticated actors experienced not just
in construction generally but with knowledge of these particular parties. Further, the
Court notes that Mr. Zarafshani’s own conflicted position appears to have caused
problems of its own, as his motives as general contractor and closeness with certain
major subcontractors may have colored his actions and prevented him from
exercising the sort of scrutiny of expenditures and results that a shrewd owner and
contractor might have applied to a project like this.24 This is not to suggest that it’s
a tit-for-tat relationship or that breaches of duty should be excused; rather it is to
emphasize the context in which these sophisticated parties’ agreements were reached
and the respective discharge of their agreed-upon duties has to be viewed. Both
parties knew there were potential conflicts, and they were still willing to deal with
one another; though, of course, as the Court agrees, they each trusted the other to
handle the competing interests and potential conflicts fairly and in good faith.
The Binding Term Sheet subordinated all of Panache’s debt to all of
Romspen’s. 25 A few months after the Debtor’s formation, Romspen agreed to
reasonable best efforts to consider, decide and implement any specific issues and/or requests
that arise in connection with the construction and development of the Construction Project
with such decisions made in the best interests of the Construction Project, Romspen, Panache
and Zarafshani, collectively and without exclusion to the respective interests of any
individual party. . . .” Panache Ex. 324 ¶ 11. This language, although less that totally clear,
perhaps indicates that the collective decision-making in the interest of the Project as a whole
could not and need not require complete disregard of the “the respective interests of an
individual party.” The Court’s point is merely intended to point out that the conflicted roles
of the parties have to be viewed in light of the agreements they all entered into voluntarily
and with significant awareness, and even (as the language above has it) “without exclusion
to the respective interests of any individual party,” which includes Romspen’s.
24 	Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 42:20-21, 43:2-3
(Mr. Oelbaum’s testimony that in light of the close relationship between Mr. Zarafshani and
certain subcontractors, he began “to believe that Mr. Zarafshani was likely not acting in the
best interests of RIC (Austin) or Romspen”).
25 	See Panache Ex. 324 ¶ 14, Ex. A.
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provide up to $125 million in senior financing (the “Senior Loan”), which includes
the $45 million it credit bid to acquire the Project.26 AFMN Investments, LLC
(“AFMN”), another entity controlled by Mr. Zarafshani, 27 also entered into a
promissory note with the Debtor for about $11.05 million, which memorialized the
Debtor’s assumption of the Panache deficiency claim from the Zen Garden Case (the
“Junior Loan”).28 Several years later, AFMN signed a subordination agreement (the
“Subordination Agreement” or “SIA”), which further elaborated on the general
capital structure it had agreed to in the Binding Term Sheet. In the Subordination
Agreement, AFMN agreed to subordinate its claim to Romspen’s claims, as agreed
by Romspen and Panache in the Binding Term Sheet, and to vote as directed by
Romspen on any plan filed if the Debtor ended up in bankruptcy, among other
things.29
Unfortunately, disputes between the parties re-emerged after the truce reached
in the prior bankruptcy case, culminating in Panache filing this involuntary petition
against RIC (Austin).30 After the RIC (Austin) involuntary petition was converted to
a voluntary petition under chapter 11, 31 Peter Oelbaum, acting as Manager for
Reomaster, engaged Gregory S. Milligan with Harney Partners to serve as Chief
Restructuring Officer for the Debtor.32 To fund the case, Romspen provided the
Debtor with a post-petition debtor-in-possession loan (the “DIP Loan”), which has
administrative priority over secured claims.33
During the case, Romspen filed a $110,320,744 secured claim based on the
Senior Loan (“Romspen Loan Claim”) and a $99,665,917 secured claim based on
its deficiency claim from the Zen Garden Case (“Romspen Deficiency Claim”).34
26 	Main Case, ECF No. 331 ¶ 10 (Brief in Support of Confirmation); Claim No. 6-3, Ex. A
(Romspen First Loan Agreement).
27 	Adversary Proceeding, ECF No. 190, Trial Tr. (Day 3, April 24, 2026) at 14:11-12 (“Q And
you control AFMN, right? MR. ZARAFSHANI: I’m a manager for it, yes.”).
28 	Main Case, ECF No. 331 ¶ 12 (Brief in Support of Confirmation); Panache Ex. 15 (AFMN
Promissory Note).
29 	Panache Ex. 3 (Subordination and Intercreditor Agreement).
30 	Main Case, ECF No. 1 (Involuntary Petition).
31 	This case was originally converted to a small business case under subchapter V, but the
Debtor ultimately removed the subchapter V designation so this case is now a case under
chapter 11. Main Case, ECF No. 286 (Notice of Deselection of Subchapter V Designation).
32 	Panache Exs. 502 (engagement letter), 503 (retention order).
33 	Main Case, ECF Nos. 132, 143, 181, 200, 259 (Interim DIP Loan Orders). The final hearing
to consider the DIP Loan was heard along with confirmation and trial of the Adversary
Proceeding.
34 	Claim Nos. 6-3, 7-3.
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AMFN filed a $13,076,004 secured claim based on the Junior Loan (“AFMN Lien
Claim”) and Panache filed a $12,486,565 secured claim for its work on the Project
along with its attorney’s fees (“Panache Lien Claim”).35 Travis County also filed a
$901,780 secured claim against the property for 2025 property taxes.36 In addition,
as discussed in detail below, the four primary subcontractors for the Project, hired
by Panache and connected to Mr. Zarafshani in various ways, filed secured claims
for work they performed for the Project (“Primary Subcontractor Claims”).37 Other
smaller contractors also filed claims discussed below.
In November of 2024, Panache, AFMN, and Vesta Texas (the “Panache
Parties”) filed the Adversary Proceeding against Romspen and Reomaster (the
“Romspen Parties”).38 In the Adversary Proceeding, in an echo of its claims from
the Zen Garden Case, the Panache Parties ask the Court to equitably subordinate
Romspen’s claims or recharacterize the claims from debt to equity, and also
generally object to the claims.39 The Romspen Parties filed counterclaims against
AFMN, Panache, and Vesta Texas and also asserted third-party claims against Mr.
Zarafshani. 40 Specifically, Romspen asserts a breach of contract claim against
AFMN and seeks specific performance of the Subordination Agreement and
damages.41 It also alleges that Panache, Vesta Texas, and Zarafshani tortiously
interfered with the Subordination Agreement and also seeks damages against all of
the Panache Parties for civil conspiracy.42
After a lengthy period of negotiation and litigation with the Panache Parties
in both the main case and Adversary Proceeding, the Debtor filed the current Plan
in February of 2026 and the Court set a hearing on confirmation, final approval of
the disclosure statement, and DIP Loan, and trial of the Adversary Proceeding.43 In
the Plan, the Debtor proposes to sell new membership interests in the Debtor to the
winner of an equity action and to use the proceeds to fund the Plan, provide one year
35 	Claim Nos. 4-1, 5-1.
36 	Claim No. 20-2.
37 	Claim Nos. 8-2 (ACM), 11-1 (Austin CG), 14-1 (Summer Legacy), 9-2 (Texas Air).
Adversary Proceeding, ECF No. 189, Trial Tr. (Day 2, April 23, 2026) at 323:17-20 (“Let
me ask this a different way. Austin CG, Summer Legacy, Texas Air, and ACM were four of
the prime subcontractors on the project? MR. ZARAFSHANI: Yes.”).
38 	Adversary Proceeding, ECF No. 1 (Original Complaint).
39 	Adversary Proceeding, ECF No. 54-1 (Second Amended Complaint).
40 	Adversary Proceeding, ECF No. 30 (Romspen Counterclaims and Third-Party Claims)
41 	Adversary Proceeding, ECF No. 30.
42 	Adversary Proceeding, ECF No. 30.
43 	Main Case, ECF No. 288 (Plan); ECF No. 301 (Mar. 10, 2026 Scheduling Order).
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of operating expenses for the reorganized debtor, as well as to settle the Primary
Subcontractor Claims upon certain conditions. 44 Reomaster, the only bidder,
subsequently won the equity auction with a $5.4 million stalking horse bid. 45
Panache neither bid nor even accessed the virtual “data room” where the due
diligence documents were kept.46
Under the Plan, Class 1 consists of Romspen’s Loan Claim and provides that
it will be allowed in the total amount of approximately $114 million.47 Of that
44 	Main Case, ECF No. 288, p. 1 (Plan) (“Under the Plan, new membership interests in the
Debtor shall be offered for sale pursuant to the Equity Auction. Reomaster or its affiliate
shall be the Stalking Horse Purchaser (with no bid protections) with an initial bid in the
amount of $5,400,000.00. The Equity Auction Proceeds shall provide for the payment of (i)
Administrative Expenses, (ii) the escrow necessary to fund the repayment of the Allowed
Travis County Secured Claim, (iii) one year of operating expenses of the Reorganized Debtor,
(iv) funding of any proposed Plan settlements, (v) a ninety percent (90%) dividend to Class
10, and (vi) at least $100,000.00 in residual Equity Auction Proceeds which shall be
distributed pro-rata to Allowed Unsecured Claims in Class 11. The Plan also provides for
unencumbered proceeds from the Causes of Action to be paid to Class 11 pro-rata upon
recovery.”).
45 	Main Case, ECF No. 331 ¶ 25 (Brief in Support of Confirmation) (“No competing bidders
submitted Qualified Bids by the applicable deadline, and, accordingly, the Equity Auction
did not occur. As a result, the CRO identified Reomaster, the Stalking Horse Purchaser, as
the Successful Bidder pursuant to the terms of the Plan. The Stalking Horse Bid consists of
$5,400,000 in cash, which, together with remaining DIP availability and remaining cash on
hand of $600,000, will provide the Reorganized Debtor with total Plan funding of
approximately $6,000,000.”).
46 	Adversary Proceeding, ECF No. 190, Trial Tr. (Day 3, April 24, 2026) at 51:11–25 (“None
of the Panache parties have accessed the debtor -- the debtor’s sale data room in connection
with the equity sale, have they? MR. ZARAFSHANI: No. We've seen the components of it,
yes. Q: How did you see the components of it? A: I went and downloaded the file from City
of Austin on your redevelopment plan, and we produced those files. Q: How do you know
that that's all that's in the develop -- in the data room? A: I reviewed your bank -- your
appraisal. Q: Do you know what the contents of the data room are, all of them? A: No. Q:
Because you didn't access it? A: No.”).
47 	Main Case, ECF No. 288, p. 8 (Plan) (“Allowance. Subject to the Adversary Proceeding, as
and if appropriate, the RMLP First Lien Claim is Allowed in the amount of $114,185,038.21,
consisting of a Secured Claim in the amount of $34,500,000.00 less the DIP Claim and the
Allowed Travis County Secured Claim, or as otherwise determined by the Bankruptcy Court
at the Confirmation Hearing, and a deficiency Unsecured Claim in the amount of the RMLP
First Lien Claim less the Allowed Secured portion of the Claim. . . . Treatment. Subject to
the Adversary Proceeding, the RMLP First Lien Secured Claim shall be paid in full by the
Reorganized Debtor under the same terms and conditions as the promissory note forming the
basis of the RMLP First Lien Secured Claim, other than the maturity date thereunder, which
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amount, $34.5 million (the current value of the Property) would be allowed as
secured, junior only to Romspen’s approximately $4.9 million administrative
expense claim for the DIP Loan and a partially allowed secured claim for Travis
County, which is treated in Class 5.48 Romspen also elected to apply 11 U.S.C.
§ 1111(b) to this claim, meaning that, notwithstanding the property’s value, its full
claim will retain its secured status to the extent the claim is allowed.49 Class 2
consists of the Romspen Deficiency Claim, which totals $99.7 million and will be
allowed as unsecured.50 Treatment of both of Romspen’s claims remains subject to
the Adversary Proceeding.51 These classes voted to accept the Plan.52
Classes 3 and 4 consist of the AFMN and Panache claims, which are treated
as unsecured because the current value of the property is insufficient to pay the more
senior secured claims in full.53 Thus, the AFMN and Panache’s claims, which they
filed as secured claims, would be treated (so far as they are ultimately allowed) as
unsecured claims. 54 These impaired classes voted to reject the Plan, although
shall be modified and amended to December 31, 2028. Any deficiency shall be treated as an
Unsecured Claim.”).
48 	Main Case, ECF No. 288, p. 8 (Plan). Notably, because Romspen made the election as was
its right under section 1111(b) of the Bankruptcy Code, ECF No. 122, the entirety of this
claim will be treated as secured and Romspen retains its lien until this claim is paid in full.
49 	Main Case, ECF No. 122 (Notice of Election); 11 U.S.C. § 1111(b).
50 	Main Case, ECF 288, p. 8 (Plan) (“Allowance. Subject to the Adversary Proceeding, the
RMLP Second Lien Claim is Allowed in the amount of $99,665,917.44. . . . Treatment.
Subject to the Adversary Proceeding, the RMLP Second Lien Claim shall be treated as an
Unsecured Claim.”).
51 	Main Case, ECF 288, p. 8 (Plan).
52 	Main Case, ECF No. 329 (Ballot Summary).
53 	Main Case, ECF No. 288, p. 9 (Plan) (“Identification of Class. Class 3 consists of the AFMN
Third Lien Claim. b. No Allowance. Nothing in this Plan Allows the AFMN Third Lien
Claim. The Debtor reserves all rights to object to or otherwise contest the same, including on
account of any counterclaim, and all such rights are transferred to the Reorganized Debtor
under this Plan. c. Treatment. To the extent later Allowed, the AFMN Third Lien Claim shall
be treated as an Unsecured Claim. . . . Identification of Class. Class 4 consists of the Panache
Fourth Lien Claim. b. No Allowance. Nothing in this Plan allows the Panache Fourth Lien
Claim. The Debtor reserves all rights to object to or otherwise contest the same, including on
account of any counterclaim, and all such rights are transferred to the Reorganized Debtor
under this Plan. c. Treatment. To the extent later Allowed, the Panache Fourth Lien Claim
shall be treated as an Unsecured Claim.”)
54 	Main Case, ECF 288, p. 9 (Plan); Claim Nos. 4-1, 5-1.
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Romspen also filed a ballot on behalf of AFMN accepting the Plan based on
AFMN’s agreement to do so in the Subordination Agreement.55
For Class 5, the Plan proposes to pay Travis County $64,934 of its secured
claim in quarterly installments from the effective date through September 30, 2029
and makes provision for payment of the remaining disputed portion of the claim, to
the extent it is allowed, also by September 30, 2029.56 This impaired class voted to
accept the Plan.57
Classes 6–9 consist of the Primary Subcontractor Claims.58 Class 6 treats a
$267,720 claim filed by ACM Services, LLC (“ACM”).59 When it was initially filed,
55 	Main Case, ECF No. 329, p. 2 n. 4 (Ballot Summary) (“Dueling ballots: AFMN Investments,
LLC rejects. Romspen Mortgage Limited Partnership, as alleged attorney-in fact for AFMN
Investments, LLC pursuant to the Subordination and Intercreditor Agreement, accepts.”).
56 	Main Case, ECF 288, p. 9-10 (Plan) (“b. Partial Allowance. The Travis County Secured
Claim is Allowed in the amount of $64,934.04, plus any additional amount finally
determined to be valid pursuant to or in connection with the dispute between the Debtor and
Travis County, whether consensual or otherwise. . . . d. Treatment. The Allowed Travis
County Secured Claim shall be paid by the Reorganized Debtor’s funding into escrow of
quarterly, equal installments of the entire asserted amount, with statutory interest, beginning
on the Effective Date and calculated through September 30, 2029, until the end of the
calendar quarter following the final and unappealable resolution of the disputed portion
(“Segregated Funds”). …The Debtor shall complete payment of the Allowed Travis County
Secured Claim, in full, with statutory interest, by no later than September 30, 2029 …”).
57 	Main Case, ECF No. 329 (Ballot Summary).
58 	Claim Nos. 8-2 (ACM), 11-1 (Austin CG), 14-1 (Summer Legacy), 9-2 (Texas Air). Trial Tr.
(Day 2, April 23, 2026) at 323:17-20 (“Q So I appreciate that. Let me ask this a different
way. 	Austin CG, Summer Legacy, Texas Air, and ACM were four of the prime
subcontractors on the project? MR. ZARAFSHANI: Yes.”).
59 	Main Case, ECF No. 288, p. 10-11 (Plan) (“No Allowance. Nothing in this Plan Allows the
ACM Secured Claim, save-and except for the election of subsection (d). The Debtor reserves
all rights to object to or otherwise contest the same, including on account of any counterclaim,
and all such rights are transferred to the Reorganized Debtor under this Plan. ... d. Optional
Allowance and Treatment. If Class 6 affirmatively elects this optional treatment on its Ballot
and accepts the Plan, then, in full and final satisfaction of the ACM Secured Claim against
the Estate, as well as in mutual release of any other Claims, Causes of Action, or Avoidance
Actions ACM and the Debtor may have against one another, on the Effective Date: (i) the
ACM Undisputed Secured Claim shall be Allowed in full, and ACM shall receive, on account
of such Allowed Claim, a distribution in the amount of ninety percent (90%) of the ACM
Undisputed Secured Claim, and (ii) the ACM Disputed Secured Claim shall be Allowed in
full, and ACM shall receive a distribution, on account of such Allowed Claim, in the amount
of seventy-five percent (75%) of such Allowed Claim, in full and final satisfaction of such
Allowed Claim. ...”); Claim No. 8-2.
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the claim was asserted to be entirely secured and was signed by Mr. Zarafshani in
his capacity as president of Panache.60 It was later amended to claim $3,897 as
secured and the remaining amount unsecured and is signed by James Morris,
president of ACM.61 Class 7 consists of a $1,027,095 secured claim filed by Austin
CG Construction Services, Inc. (“Austin CG”) and is signed by Mr. Zarafshani in
his capacity as president of Panache. 62 Class 8 treats a $538,565 secured claim filed
by Summer Legacy, LLC (“Summer Legacy”) and is signed by Mr. Zarafshani in
his capacity as president of Panache.63 Class 9 consists of a $446,301 claim filed by
Texas Air Industries, Inc. (“Texas Air”) and is also signed by Mr. Zarafshani in his
capacity as president of Panache.64
Overall, the testimony and evidence suggest an extremely close relationship
between these four subcontractors and Mr. Zarafshani.65 In fact, Mr. Zarafshani set
up Austin CG and Summer Legacy in Texas when they began work on the Project,
and he formerly owned Summer Legacy.66 Mr. Zarafshani is also the authorized
signature on Summary Legacy’s bank account.67 Mr. Zarafshani testified that he
uses Summer Legacy for 100% of the framing, drywall, and roofing needs for all of
60 	Claim No. 8-1.
61 	Claim No. 8-2.
62 	Main Case, ECF No. 288, p. 11 (Plan - similar treatment to ACM Secured Claim); Claim No.
11-1.
63 	Main Case, ECF No. 288, p. 12 (Plan - similar treatment to ACM Secured Claim).
64 	Main Case, ECF No. 288, p. 13 (Plan - similar treatment to ACM Secured Claim); Claim No.
16-1.
65 	See e.g. Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 264:1-
265:20 (Mr. Milligan testifying about the closeness between Mr. Zarafshani and the Primary
Subcontractors).
66 	Adversary Proceeding, ECF No. 189, Trial Tr. (Day 2, April 23, 2026) at 324:24-325:9 (“But
you brought [Austin AG and Summer Legacy] down here to help you do that 24 project?
MR. ZARAFSHANI: I invited them to come, yes. Q: And, in fact, you set their companies
up, correct? A: Yes. Q: Right. And you are the owner of Summer Legacy, right? A: When -
- yes, I was in 2015 or ‘16, I'm -- I think. Q: Right. You were the owner in name, and then
I believe I saw there was a document that transitioned the ownership in name from you to
Rafael Gutierrez, correct? A: Yes, that’s correct.”); Debtor Ex. 54 (Summer Legacy Articles
of Incorporation listed Mr. Zarafshani as sole manager).
67 	Adversary Proceeding, ECF No. 189, Trial Tr. (Day 2, April 23, 2026) at 330:20-24 (“You’re
not an authorized -- you don't have access to their bank accounts? MR. ZARAFSHANI: No,
I’m the authorized signature on their bank accounts. Q You’re the authorized signature on
their bank accounts? A: Yes.”).
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his projects.68 He also incorporated and served as the sole original director of Texas
Air; he testified that this was a mistake that was later corrected, but the Court did
not find this credible.69 Mr. Zarafshani testified that he has no control over these four
subcontractors, but the Court finds that this testimony was also not credible.70
In fact, the Court makes the general finding that Mr. Zarafshani’s testimony
was simply not credible. The Court does not at all doubt his good intentions, his
efforts, or his belief that this property has a lot of potential. But throughout his
examination, 	Mr. 	Zarafshani’s 	testimony 	was 	unconvincing, 	and 	it 	often
contradicted or stood in tension with credible evidence and testimony from other
witnesses. For example, his extreme closeness with a number of the contractors on
the property is unusual and raises concerns that they were not being supervised or
paid on commercially responsible terms. His testimony did not dispel these
suspicions. In his deposition, Mr. Zarafshani testified that he had no written logs of
the subcontractor’s work.71 At trial, he testified that he kept notebooks recording
work performed by the subcontractors but that he destroyed the notebooks so there
is no record of the work performed.72 And the only other employee of Panache and
its chief financial officer, Ms. Woodham, was apparently not aware of any time logs
68 	Adversary Proceeding, ECF No. 190, Trial Tr. (Day 3, April 24, 2026) at 32:15-22 (“Q How
do you decide whether Summer Legacy is the best provider to do that work on any particular
Panache project? A Depending on the project and the scope of work. They are commercial
contractors. They’re union trained. So for -- I use them 100 percent of the time for framing,
100 percent of the time for drywall, 100 percent of the time for roofing. 	And if there are
other things the job requires, we evaluate it based on the need of the job.”)
69 	Debtor Exs. 61, 63 (Texas Air Certificate of Formation); Adversary Proceeding, ECF No.
190, Trial Tr. (Day 3, April 24, 2026) at 33:18-20; 34:1-34:2 (“Q So they put you on as the
owner, and that was a mistake? That’s what you just said? MR. ZARAFSHANI: Yes, that’s
exactly what I said.”).
70 	See e.g. Adversary Proceeding, ECF No. 189, Trial Tr. (Day 2, April 23, 2026) at 330:18-19
(“And so you have no control over Summer Legacy? MR. ZARAFSHANI: Oh, god, no. I -
- I wish I could, but no.”).
71 	Adversary Proceeding, ECF No. 190, Trial Tr. (Day 3, April 23, 2026) at 82:15-25.
72 	Adversary Proceeding, ECF No. 189, Trial Tr. (Day 2, April 23, 2026) at 329:9-22 (“So let
me -- so if -- so now you're telling me that there were logs that you kept and signed off on
every day? MR. ZARAFSHANI: No, I kept them weekly. Q: There were weekly logs? A:
Yes, I wrote them on my -- 	Q: Sorry, go ahead. A: I kept track of who did what on my
notebook, and once the -- the invoices were turned in and it matched, that was the end of it.
Q: So you verified how many men and how many hours were -- of work were performed by
the subcontractors Austin CG and Summer Legacy every week? Is that what your testimony
is? A: Every day, every week. Q: And you got the -- and you have those logs? A: No. Q: All
right. Did you throw them away? A: I had them on weekly basis. When I got the invoices, I
didn't keep the paper.”).
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of the subcontractors.73 To take another example, it seems that Mr. Zarafshani had
video recordings from meetings at the Project dating back to the Zen Garden Case,
but he claimed to be unable to produce any such video files for the Project during
the RIC (Austin) era, claiming without reasonable explanation that the video
recorded over itself only during this time period, such that he was not able to produce
them to Romspen in discovery.74 In addition, his testimony concerning the land he
cleared of trees, which drew criminal action from the City of Austin, was not
credible.75 These are merely a few examples. But they relate to the broader question
of who is to blame for the fact that the Project was such a failure: Was it Romspen
for not funding even more than it did, or was it Mr. Zarafshani’s team for not being
capable? Ultimately, the Court believes that the evidence strongly favored the notion
that Mr. Zarafshani’s organization was simply not up to the task of completing this
serious, massive project, and that is the reason that it failed despite the dramatic
amounts of money spent on it. The Court did not find Mr. Zarafshani’s efforts to
shift the blame to be credible.
73 	Adversary Proceeding, ECF No. 187, Trial Tr. (Day 1, April 22, 2026) at 141:8-25 (“And
you aren’t aware of any written logs that documented the time that labors for -- laborers for
a particular sub actually spent onsite on any given day, right? MS. WOODHAM: I’m not
aware of those records. Q: Right. Panache didn’t keep any time logs, right? A: Panache did
not. Q: And the subs weren't required to keep time logs either, were they? A: I do not -- I
cannot speak to that. Q: Well, you never asked them to submit it, did you? A: I personally
did not. Q: That was not something you considered in your quality control role when you
were submitting draw requests to RMLP, right? A: No. Q: So the only confirmation that the
work was performed was based on photographs and Mr. Zarafshani’s observations, right? A:
That’s correct.”).
74 	Adversary Proceeding, ECF No. 190, Trial Tr. (Day 3, April 24, 2026) at 85:8-24 (“Do you
recall searching through your video files of recorded meetings when you were talking with
Mr. Milligan in an effort to show him one of the videos when you were talking with him
back during the Zen Garden phase? MR. ZARAFSHANI: Mr. Milligan came to our office.
I displayed the meeting with -- Q: Mm-hmm. A: -- for him, and he watched it. Q: And do
you recall searching through your video files to find that meeting? A: We went through the
DVD recorder and fast-forward and backwards, yes. Q: You do have video files of recorded
meetings in connection with the project? A: It’s an ongoing recording, and it replaces itself,
yes. Q: Has it been produced to us, sir? A: I -- I don’t have it anymore, no.”).
75 	Mr. Zarafshani maintained that damaged trees were removed “throughout the campus” due
to damage from Winter Storm Uri but then conceded that the tree removal was actually to
make an industrial park for Austin Energy; his testimony as to this tree-clearing was just
unconvincing and was very effectively undermined by cross-examination. See, e.g.,
Adversary Proceeding, ECF No. 190, Trial Tr. (Day 3, April 24, 2026) at 76:22–77:4; 80:18–
81:3; 126:12-127:4.
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According 	to 	Mr. 	Zarafshani, 	the 	contractors 	behind 	the 	Primary
Subcontractor Claims could not carry large account receivable balances and so had
to be paid weekly during this constructions.76 These financially strapped contractors
were given the option of voting in favor of the Plan and receiving payment of 90%
of their undisputed claims and 75% of their disputed claims or voting against the
plan and litigating allowance of their claims.77 Notwithstanding what is essentially
a favorable settlement offer for speedy and guaranteed payment of the supermajority
of their claims, these four impaired creditors, like AFMN and Panache, voted to
reject the Plan and continue litigating their claims, and likely incurring even more
legal fees, which strongly suggests some influence from Mr. Zarafshani despite his
denial of having spoken with them.78
Class 10 is an administrative convenience class that consists of nine unsecured
claims that total less than $25,000.79 The Plan allows the claims and provides that
they will be paid 90% of their claims within five days of the effective date.80 This
impaired class voted in favor of the Plan.81
The final class of claims, Class 11, which consists of unsecured claims that
total more than $25,000, would share pro-rata from the remaining equity auction
proceeds of at least $100,000, as well as any net proceeds from unencumbered estate
causes of action, if any.82 This class includes the allowed $99.6 million Romspen
Deficiency Claim (subject to the Adversary Proceeding) and the AFMN and Panache
76 	Adversary Proceeding, ECF No. 188, Trial Tr. (Day 2, April 23, 2026) at 327:2-18 (“Q All
right. The weekly payments are in the binding term sheet? MR. ZARAFSHANI: No, their
rate. They would come back at the same rate they were getting – Q: Okay. -- paid before.
But that was all predicated on the agreement back in the Zen Garden days that you would
bring them -- that you were going to pay them weekly and you would get a lower rate. And
I believe Ms. Woodham said yesterday that was a win-win for everybody, right? A: I think
what I heard Ms. Woodham say, and I agree with what she said, was that they were smaller
companies and they couldn't carry large amounts of receivables, so we paid them weekly or
bi-weekly to -- but you get cheaper rates that way because you end up -- they don't have to
finance their own work.”); Adversary Proceeding, ECF No. 190, Trial Tr. (Day 3, April 24,
2026) at 41:23-42:1 (“You don’t know why the subcontractors who you’ve testified can’t
carry large accounts receivable balances would turn down a 90 percent payout under the
plan? MR. ZARAFSHANI: I have not spoken to them about the plan.”).
77 	Main Case, ECF No. 288, p. 10-13 (Plan).
78 	Main Case, ECF No. 329 (Ballot Summary).
79 	Claim Nos. 1-1, 9-1, 10-1, 12-1, 13-1, 15-1, 17-1, 18-1, 19-1.
80 	Main Case, ECF No. 288, p. 14 (Plan).
81 	Main Case, ECF No. 329 (Ballot Summary).
82 	Main Case, ECF No. 288, p. 14 (Plan).
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claims, to the extent they are allowed.83 The only Class 11 creditors to vote were
ACM, AFMN, and Panache who all voted to reject the Plan.84
Analysis
To obtain confirmation of a plan of reorganization, a debtor must prove that
the plan complies with the requirements of 11 U.S.C. § 1129 by a preponderance of
the evidence.85 These requirements include that the plan is “proposed in good faith
and not by any means forbidden by law,”86 that at least one class of non-insider
impaired claims accepts the plan,87 and that the plan does not “discriminate unfairly”
and is “fair and equitable” as to any objecting class of creditors.88 The Panache
Parties contend that the Plan does not meet these requirements and so confirmation
should be denied.89 The Court will discuss only some of the arguments that have
been raised, although its finding is that all elements have been met.
I. 	The Plan meets the statutory requirements and should be confirmed.
A. Good faith
The Panache Parties argue that the Plan was not filed in good faith because
the Debtor has been unduly influenced by the Romspen Parties, who are insiders,
83 	Main Case, ECF No. 288, p. 14 (Plan) (“a. Identification of Class. Class 11 consists of
Unsecured Claims which are equal to or exceed $25,000.00 in amount. . . . c. Treatment.
Class 11 Claims shall be paid pro-rata from the residual Equity Auction Proceeds which shall
be at least $100,000.00, as well as any net proceeds of unencumbered Causes of Action, if
any. The Debtor reserves all rights to object to or otherwise contest any Unsecured Claim,
including on account of any counterclaim, and all such rights are transferred to the
Reorganized Debtor under this Plan.”), p. 8-9 (“b. Allowance. Subject to the Adversary
Proceeding, the RMLP Second Lien Claim is Allowed in the amount of $99,665,917.44. c.
Treatment. Subject to the Adversary Proceeding, the RMLP Second Lien Claim shall be
treated as an Unsecured Claim.”), p. 9 (“c. Treatment. To the extent later Allowed, the AFMN
Third Lien Claim shall be treated as an Unsecured Claim.”), p. 9 (“c. Treatment. To the extent
later Allowed, the Panache Fourth Lien Claim shall be treated as an Unsecured Claim.”).
84 	Main Case, ECF No. 329 (Ballot Summary).
85 	11 U.S.C. § 1129; In re Briscoe Enters., Ltd. II, 994 F.2d 1160, 1165 (5th Cir. 1993); In re
Cypresswood Land Partners, I, 409 B.R. 396, 422 (Bankr. S.D. Tex. 2009); In re J T Thorpe
Co., 308 B.R. 782, 785 (Bankr. S.D. Tex. 2003).
86 	11 U.S.C. § 1129(a)(3).
87 	11 U.S.C. § 1129(a)(10).
88 	11 U.S.C. § 1129(b).
89 	Main Case, ECF No. 383 ¶ 2 (Panache Parties’ Post-Trial Brief in Opposition to
Confirmation).
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and the Plan is designed to shield them from estate causes of action, rather than
maximize estate assets.90 Specifically, they contend that because Reomaster, an
affiliate of Romspen, won the equity auction—after a self-serving and ineffective
marketing effort—the estate causes of action against the Romspen Parties will not
be pursued, effectively releasing the Romspen Parties from liability.91
Courts evaluate whether a plan is proposed in good faith based on the totality
of the circumstances related to creation of the plan.92 “Where the plan is proposed
with the legitimate and honest purpose to reorganize and has a reasonable hope of
success, the good faith requirement of section 1129(a)(3) is satisfied.” 93 Some
factors courts consider when evaluating good faith are “(1) whether the proposed
plan promotes a result consistent with the Bankruptcy Code’s objectives; (2) whether
the proposed plan has been proposed with honesty and good intentions and with a
basis for expecting that reorganization can be effected; and (3) whether the debtor
exhibited fundamental fairness when dealing with its creditors.”94
As to the first factor, the Plan appears to be an effort to reorganize the Debtor’s
debt and provide a path for moving forward with the Project. The Plan provided for
an equity auction designed infuse new money into the estate so the Debtor could pay
creditors and continue developing the property. According to the evidence and
testimony presented at trial, the Project was actively marketed to thousands of parties
for two months and had been toured by hundreds of sophisticated parties over a
period of years. 95 Specifically, Mr. Milligan credibly testified that during their
marketing efforts, the Debtor contacted the top 20 commercial real estate brokers
and top 20 commercial real estate developers with calls, emails, and a marketing
teaser. 96 Separately, the Debtor also listed the equity auction on two national
90 	Main Case, ECF No. 383 ¶¶ 3-7 (Panache Parties’ Post-Trial Brief in Opposition to
Confirmation).
91 	Main Case, ECF No. 383 ¶ 5 (Panache Parties’ Post-Trial Brief in Opposition to
Confirmation).
92 	B.M. Brite v. Sun County Development, Inc. (In re Sun County Development, Inc.), 764 F.2d
406, 408 (5th Cir. 1985).
93 	Id.; Double H Transportation LLC v. Odell (In re Double H Transportation LLC), 603
F.Supp. 3d 468, 477 (W.D. Tex. 2022).
94 	In re Trinity Family Practice & Urgent Care PLLC, 661 B.R. 793, 813 (Bankr. W.D. Tex.
2024) (citing In re W.R. Grace & Co., 475 B.R. 34, 87-88 (D. Del. 2012)).
95 	Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 250:17-25-255:19.
96 	Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 250:17-25 (“[W]e
used the 2025 Austin Business Journal list of the top 20 commercial real estate brokers and
top 20 commercial real estate developers in Austin. They each, all 40, got a phone call, an
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bankruptcy sale platforms that each have thousands of subscribers.97 In general, Mr.
Milligan’s testimony concerning both marketing, good faith, and other points was
highly credible.
The Panache Parties point to one marketing email and attached teaser as
evidence that the property was not properly marketed because it stated that the
Project was subject to $200 million in liens and claims, which would not be true
post-confirmation, and included a paragraph in some versions that stated “We
understand this is an unusual value proposition, but we must satisfy the court that
we’ve conducted a robust marketing process, so I have attached the Teaser that
contains further info in case you or someone you know might be interested.”98 While
this email and teaser could have been better articulated, it is generally reflected the
Project’s current lien and claim status.99 It is also unclear whether this version of the
email was widely circulated.100
The Court notes that the Panache Parties’ argument on this issue was
overstated at best and disingenuous at worst, since given the § 1111(b) election that
has been exercised by Romspen,101 the ongoing lien on the property is more than
email, and a copy of the teaser. We also used a couple of widely used national bankruptcy
sale platforms, one being the DailyDAC based out of Chicago that I think has a subscriber
base north of 10,000. And Inforuptcy, they don’t publish their subscriber base, but I think
there’s public information that they had listed more than 8,000 assets for sale last year.”);
Debtor Ex. 17 (marketing outreach list).
97 	Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 250:17-251-5 (“We
also used a couple of widely used national bankruptcy sale platforms, one being the
DailyDAC based out of Chicago that I think has a subscriber base north of 10,000. And
Inforuptcy, they don’t publish their subscriber base, but I think there’s public information
that they had listed more than 8,000 assets for sale last year.”).
98 	Panache Ex. 514.
99 	See generally Claim Register; Main Case, ECF No. 288 (Plan).
100 	Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 253:11-24 (“So
focusing on this email, in looking at this last few days, particularly this last paragraph, is it
also the case that there were versions of this email that went out to a group out of that 40 that
actually has different language at the bottom? MR. MILLIGAN: Correct. We figured this
out, I think, yesterday, that there were versions of this solicitation that did not include the
last paragraph. Q: Okay. And that’s kind of important just -- I mean, I think the Court was
even maybe poking fun that it wasn't the best language in that last paragraph, but it's the case
that there are emails that went out without that, correct? A: That – that’s why it stuck out
when we saw one that didn’t have that last paragraph.”).
101 	Main Case ECF No. 122 (Notice of Election); ECF No. 386 ¶ 10 (Debtor’s Post-Trial Reply
Brief).
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$100 million, much more than the currently estimated value of the property.102 In
any case, based on the evidence presented, the Court finds that the equity auction
was appropriately marketed. It is too bad that no other bidders materialized; but Mr.
Milligan is experienced, trustworthy, and energetic. It is not his fault that he could
not spin gold from straw.
Additionally, if they thought the auction undervalued the Property, the
Panache Parties were free to participate in the auction, or to find buyers to do so, and
were well-positioned to do so; given Mr. Zarafshani’s deep knowledge of the
Property and well-attested gift for marketing, he could no doubt have marketed the
Property as effectively as anyone else and obviously had motivation to do so. He
claimed at trial to have “shown the property 539 times” over the years.103 In fact,
although he seemed to deny it (not credibly), there are some indications in the record
that he did undertake marketing efforts during the bankruptcy.104 Had the Panache
Parties won the auction or helped another party do so, they could have potentially
gained control of the Debtor and pursued claims against the Romspen Parties. They
did not.
Because the Debtor is insolvent and is currently without a revenue source, the
only hope for getting payments to existing creditors and moving forward with the
Project was from an influx of new money, which the Reomaster bid provides. The
Court asked the Panache Parties multiple times during this bankruptcy case whether
they would fund the case, and they declined. In the absence of funds from another
source, the Debtor reasonably accepted Reomaster’s bid so that it could move
forward with reorganizing before its DIP facility ran out. The likely outcome of the
auction is that claims against the Romspen Parties will not be pursued, but that
outcome does not mean the Plan was filed in bad faith nor that this outcome was
fore-ordained; it was a product of events, including an auction. The Plan provides a
path for the Debtor to pay its creditors and move this troubled Project forward so
that it can finish construction and begin leasing space and earning income. This
result is obviously consistent with the Bankruptcy Code’s objectives and so the
Court finds that the first factor is easily met.
102 	Main Case, ECF No. 383 ¶ 19 (Panache Parties’ Post-Trial Brief in Opposition to
Confirmation - “Contrary to those assertions, the Reorganized Debtor will not be subject to
existing claims and liens beyond $32.8 million valuation of the property because all junior
debt will be discharged.”).
103 	Adversary Proceeding, ECF No. 190, Trial Tr. (Day 3, April 24, 2026) at 287:9.
104 	Adversary Proceeding, ECF No. 190, Trial Tr. (Day 3, April 24, 2026) at pages 53-54, 60.
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For 	the 	second 	factor, 	the 	evidence 	suggests 	that 	the 	Debtor’s 	Chief
Restructuring Officer, Mr. Milligan, attempted to negotiate with the Panache Parties
on a consensual plan structure and only proposed this Plan after those negotiations
failed.105 Even so, the structure of the Plan as an equity auction gave the Panache
Parties a way to take control of the Project if they desired, but the Panache Parties
chose not to participate in the auction. As discussed, this Debtor needed an influx of
cash to reorganize and move forward. The Panache Parties decided not to participate
in that process. Even at the very end of trial, after evidence had closed and the Court
was hearing argument, the Panache Parties’ bankruptcy counsel vaguely claimed his
clients had an offer on the table to take this case in an alternative direction.106 The
Court fails to see how this “too little too late” quasi-offer could have mattered in any
case, but it seems to have been nothing more than vapor; there was never any filing
on record about it and it has not been mentioned in their briefing. The point is that
the Panache Parties had ample chances to take this case in a different direction.
The 	Plan 	also 	appropriately 	made 	the treatment 	of 	Romspen’s 	claims
contingent on the outcome of the Adversary Proceeding.107 Given the circumstances
105 	Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 242:3-9 (“And
what was the response to that? The Panache parties would not mediate on plan terms. And is
that sort of the only reason why you pivoted to a nonconsensual plan? MR. MILLIGAN:
Yeah, at that point, I mean, it was clear. We had tried a couple of different ways and offered
mediation, and it wasn’t going to happen, and you could see the -- the runway ending with
the available cash. And so we had to pivot.”).
106 	Adversary Proceeding, ECF No. 192, Trial Tr. (Day 5, April 28, 2026) 164:5-20 (“MR.
GAITHER: It’s a nice segue, Your Honor, because I stood at this podium in opening and
said it's my hope to be able to make an alternative proposal, and as of 12:28 this afternoon, I
was very concerned that I was not going to be able to tell the Court that I had an alternative
proposal. I will tell the Court now that as of our lunch break, we received an alternate take
out DIP proposal, which we've shared with Mr. Berghman and Mr. Milligan. Obviously,
we’re here on confirmation today. The point of that take out DIP would be to position this
estate to fund the operations, take out the existing DIP, fund the maintenance of the property,
pending the Court's ruling in the adversary, of course, and then with respect -- with the benefit
of that ruling, perhaps propose an alternative plan. I don't have an alternative plan that I can
give Your Honor today, but that's -- that is our alternative proposal.”).
107 	Main Case, ECF No. 288, p. 8 (Plan - “Allowance. Subject to the Adversary Proceeding, as
and if appropriate, the RMLP First Lien Claim is Allowed in the amount of $114,185,038.21,
consisting of a Secured Claim in the amount of $34,500,000.00 less the DIP Claim and the
Allowed Travis County Secured Claim, or as otherwise determined by the Bankruptcy Court
at the Confirmation Hearing, and a deficiency Unsecured Claim in the amount of the RMLP
First Lien Claim less the Allowed Secured portion of the Claim. . . .”); (Plan - “Allowance.
Subject to the Adversary Proceeding, the RMLP Second Lien Claim is Allowed in the
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of this case, where the parties blame each other for the Project’s failure, the Court
finds that the Plan was proposed with honesty and good intentions so that a
reorganization could proceed while the results of the Adversary Proceeding were
unknown. Delay was not a possibility; there was no funding—including from the
Panache Parties, who wanted delay but did not want to pay for it.
Relatedly, as to the third factor, again, the testimony indicated that Mr.
Milligan attempted to negotiate with the Panache Parties, the Plan gave the Panache
Parties an opportunity to gain control of the Debtor, and the Plan pays administrative
class claimants 90% of their claims and gave the secured creditors who are connected
to Mr. Zarafshani an opportunity to vote in favor of the Plan and also receive 75-
90% payment of their claims (even the contested portions of them). The Court finds
that this treatment is fundamentally fair under the facts of this case.
Thus, the Court finds that the Plan was proposed in good faith as required by
11 U.S.C. 1129(a)(3).
B. Impaired Accepting Classes
Subsection (a)(10) mandates that at least one impaired class of creditors
accept a plan of reorganization, which must be determined without counting insider
creditor votes.108 A claim is impaired unless the plan “leaves unaltered the legal,
equitable, and contractual rights to which such claim or interest entitles the holder
of such claim or interests.”109
The Panache Parties also contend that the Plan cannot be confirmed because
it lacks an impaired accepting class.110 Even though classes 5 and 10 voted in favor
of the plan, they argue that those classes are improperly classified and artificially
impaired and therefore cannot fulfill this statutory requirement.111
amount of $99,665,917.44. . . . Treatment. Subject to the Adversary Proceeding, the RMLP
Second Lien Claim shall be treated as an Unsecured Claim.”).
108 	11 U.S.C. § 1129(a) (“The court shall confirm a plan only if all of the following requirements
are met . . . (10) [i]f a class of claims is impaired under the plan, at least one class of claims
that is impaired under the plan has accepted the plan, determined without including any
acceptance of the plan by any insider.”).
109 	11 U.S.C. § 1124(a)(1).
110 	Main Case, ECF No. 383 ¶¶ 8-15 (Panache Parties’ Post-Trial Brief in Opposition to
Confirmation).
111 	Main Case, ECF No. 383 ¶ 8 (Panache Parties’ Post-Trial Brief in Opposition to
Confirmation).
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1. Class 5 – Travis County Secured Claim
Governing law is not clear on whether secured tax claims can constitute an
impaired accepting class. The analysis requires some background.
Unsecured 	tax 	claims 	are 	entitled 	to 	special 	treatment 	in 	plans 	of
reorganization. Under § 1129(a)(9)(C) of the Bankruptcy Code, unless the claimant
agrees to different treatment, a claimant whose claim arises under § 507(a)(8) must
receive regular installment payments that equal the amount of the claim, over a
period of five years or less, and in a manner that is “not less favorable than the most
favored nonpriority unsecured claim provided for by the plan.”112 Unsecured tax
claimants—holders of “allowed unsecured claims of governmental units”—receive
this § 507(a)(8) status (with certain exceptions) and thus are entitled to the treatment
specified in § 1129(a)(9)(C).
But the widely accepted rule is that unsecured tax claims, even if impaired
(i.e., receiving worse treatment than it would be entitled to under the Code), are not
classified under the Code because they are specifically excluded from the classes of
claims that plans are required to designate: § 1123(a) states that a plan shall
“designate 	... 	classes 	of 	claims, 	other 	than 	claims 	of 	a 	kind 	specified 	in
... § 507(a)(8) of this title.”113 Because of this lack of being in a “class,” holders of
such claims cannot, of course, fulfill the statutory requirement of an impaired
accepting class.114 This chain of logic follows directly from, and adheres closely to,
the text of the Code, and to this Court it seems plainly correct.
The Code contains no such prohibition on the classification of secured tax
claims. Nonetheless, some courts have been persuaded that they should not be able
to serve as impaired accepting classes.115 This approach has some appeal, because
the Code does say that a secured tax claim must be paid in the same manner as
unsecured tax claim if, but for the security interest, the claim is entitled to receive
the same treatment as a priority unsecured tax claim. In specific, § 1129(a)(9)(D)
provides that “with respect to a secured claim which would otherwise meet the
description of an unsecured claim of a governmental unit under section 507(a)(8),
112 	11 U.S.C. § 1129(a)(9)(C). Unsecured tax claims are among those claims entitled to payment
under § 507(a)(8) and therefore within the scope of this section.
113 	11 U.S.C. § 1123(a)(1) (emphasis added).
114 	11 U.S.C. § 1129(a)(10) (“If a class of claims is impaired under the plan, at least one class
of claims that is impaired under the plan has accepted the plan . . . .”) (emphasis added).
115 	See, e.g., In re Mangia Pizza Invs., LP, 480 B.R. 669, 677-79 (Bankr. W.D. Tex. 2012).
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but for the secured status of that claim, the holder of that claim will receive on
account of that claim, cash payments, in the same manner and over the same period,
as prescribed in subparagraph (C).116
But note that neither § 1123(a) nor any other section states that both “claims
of a kind specified in ... § 507(a)(8) of this title” and other claims entitled to the
same treatment as those claims are excluded from classification. In other words, the
text of the Code itself provides no reason to exclude secured tax claims from
classification. Indeed, the clear statement about the (non-)classification of unsecured
tax claims might suggest that the omission of secured tax claims from § 1123(a)’s
classification rules is meaningful.
But courts have not all agreed with this analysis. In Mangia Pizza Investments,
LP, a bankruptcy court in this district found that tax claims given the treatment
available under 1129(a)(9)(C) are not entitled to vote even if impaired (i.e., given
worse treatment under the plan than what they would be entitled to under the statute)
because they cannot be “classified for purposes of voting and cram down.”117 The
justification for this holding is not based on the text so much as a sense of (a) the
analogy to unsecured tax creditors, mentioned above118; and (b) a sense of inequity
toward other creditors if secured tax creditors were able to “bind” them by being the
impaired accepting class in a plan. The second point is best articulated thus: “[G]iven
the express statutory treatment afforded tax claims, tax claims should not be given
the ability to vote if the taxing authority accepts treatment less than that allowed
under section 1129(a)(9)(C) and (D). In doing so, creditors who are not given
statutory rights will not have their votes diluted.”119 But various other creditors’s
claims are also “given statutory rights” in the Bankruptcy Code. With the greatest
respect for this thoughtful opinion, the Court does not ultimately find this reasoning
persuasive. The Court is not convinced it is empowered to decide when prescribed
statutory treatment is sufficiently special that creditors should not be able to serve as
an impaired accepting class.
116 	11 U.S.C. § 1129(a)(9)(D).
117 	480 B.R. 669, 677-79 (Bankr. W.D. Tex. 2012). The only circuit point opinion that comes
close to addressing this issue is the Fourth Circuit in a short footnote, but despite the general
language used (“tax claimants”), it appears that the claimant in question held an unsecured
claim and is thus likely distinguishable from the ruling here. See In re Bryson Properties,
XVIII, 961 F.2d 496, 501 n. 8 (4th Cir. 1992).
118 	Mangia, 480 B.R. at 678 (“Because § 1129(a)(9)(D) requires that secured tax claims be given
the same treatment as all other priority tax claims, there is a strong argument to be made that
such claims should be treated equally when it comes to purposes of voting and cram down.”).
119 	Mangia, 480 B.R. at 678-79.
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In sum, this Court believes that the text is clear and should be followed: A
class consisting of a holder of a secured tax claim who accepts a plan in which it is
given worse treatment than that to which it is statutorily entitled qualifies as an
impaired accepting class. While it seems clear that unsecured tax creditors, even if
impaired, cannot serve as the statutorily required accepting class, the Court believes
that secured tax creditors can.
Here, the Plan provides for treatment of the Travis County claim over a period
longer than the statutory five-year period in subsection (a)(9)(C). It also incorporates
a process for reserving funds on disputed amounts while the parties continue
litigation over the disputed amounts and gives the reorganized debtor discretion in
the timing of installment payments. This treatment certainly impairs Travis County’s
rights, and it nonetheless decided to accept the Plan. Travis County qualifies as an
impaired accepting class.
2. Class 10 – Administrative Convenience Class
Even if the Travis County vote cannot be considered, Class 10, another
impaired class, voted to accept the Plan.120 However, the Panache Parties argue that
this class was both gerrymandered and artificially impaired.121
When classifying claims, debtors may propose a plan that places “a claim or
an interest in a particular class only if such claim or interest is substantially similar
to other claims or interests in such class.”122 A plan may also “designate a separate
class of claims consisting only of every unsecured claim that is less than or reduced
to an amount that the court approves as reasonable and necessary for administrative
convenience.”123
From the testimony at trial, it seems clear that the Debtor chose to classify
these claims separately for two independently sufficient and compelling reasons: (1)
because of their small amounts compared to the other unsecured claims and (2)
120 	Main Case, ECF No. 329, p. 3 (Ballot Summary - summary chart), Ex. A, p. 16-17 (Class 10
ballots).
121 	Main Case, ECF No. 383 ¶¶ 12-15 (Panache Parties’ Post-Trial Brief in Opposition to
Confirmation). As all parties recognize, in the Fifth Circuit, “artificial impairment” is not an
independent issue, it sounds in good faith (and does not suffice in itself to support a finding
of bad faith). See generally In re Village at Camp Bowie, L.P., 710 F.3d 289 (5th Cir. 2013).
122 	11 U.S.C. § 1122(a).
123 	11 U.S.C. § 1122(b).
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because these claimants are true arms-length creditors, unlike the creditors in Classes
6–9 who appear to be deeply connected to Mr. Zarafshani. In other words, as Mr.
Milligan put it, the Class 10 creditors are creditors who “don’t have a dog in this
fight.”124 During the trial, Mr. Milligan testified that the Debtor classified the Class
10 claims separately to pay them right away—rather than over time like the other
unsecured claims—so that it could focus on the more complicated litigation
involving the Panache Parties and the subcontractors who have much larger
unsecured claims and whose extremely deep connections with Mr. Zarafshani raise
certain suspicions about both their behavior in this case and potentially about the
underlying validity of their claims.125
Under the facts of this case, the Court finds that this classification is both
reasonable and necessary. The decision is an easy one. Either of the two credibly
offered reasons above would suffice to support the separate classification of these
claims. If the claimants in Classes 6–9 had voted in Class 10, their claims would
have swamped the votes of the actual Class 10 creditors and some of the only truly
arms-length creditors in this case would have been silenced.
In its post-trial brief, Panache also argues that the Debtor has sufficient
liquidity to pay the claims in Class 10 in full and that it artificially impaired their
claims by only paying 90%.126 Mr. Milligan contends that it reduced payment to this
class to 90% of their claims to recognize that these claimants would be paid right
124 	Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 260:24-25 (“I mean,
those are the kids who don’t have a dog in this fight.”).
125 	Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 261:11-262:11 (“Q
Okay. And why pay the convenience class 90 cents on the dollar? MR. MILLIGAN: I mean,
A, because they’re getting payment sooner. Because if they had to ride along until, you know,
this -- the retained claims are litigated, et cetera, it would be, you know, years. And it’s
common, very common for folks to take a discount for early payment. And it also lined up
and was consistent with the offer that we made to the subcontractors to pay 90 percent of
their scheduled claims. Q And you heard in opening that the Panache parties believe the
debtor has got enough money to pay all these people in full. What’s your response to that?
A Well, I mean, they do. It’s spending somebody else’s money. We have unknowns about
what the future liabilities are going to be. We have more than $26,000 of cash now since the
subs didn't take those offers. But we’ve got the unknown with respect to the City of Austin
litigation on the industrial site, what that’s going to turn into. 	You know, there are other
contingencies. We still don't know what the fix and resolution is on the -- on the, this deal.
So there’s still, you know, lots of open variables.”).
126 	Main Case, ECF No. 383 ¶ 14 (Panache Parties’ Post-Trial Brief in Opposition to
Confirmation).
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away, rather than over time, to reflect the time-value of money.127 He recognized
that the Debtor has more than $26,000 in cash, but also said that paying the claims
in full would be “spending somebody else’s money” because of unknown future
liabilities, like litigation with the City of Austin, and because whatever cash is
available on the other side of confirmation would be impaired by a $100 million
secured claim.128
Under the facts of this case, where the largest creditors are either affiliated
with each other or appear to have loyalty to one side or the other, the Debtor’s
separate classification of true third-party creditors is reasonable and necessary to
prevent 	those 	creditors 	from 	being 	swamped 	by 	the 	other 	parties. 	As 	an
independently sufficient reason to approve the classification, these claims are also
significantly different in size and type from the other claims and the administrative
convenience test is met.
For these reasons, the Court finds that the Plan meets the requirements of 11
U.S.C. § 1129(a)(10).
C. Cramdown
When 	a 	class 	objects 	to 	a 	plan, 	courts 	will 	still 	confirm 	the 	plan
notwithstanding the objection, if “the plan does not discriminate unfairly, and is fair
and equitable, with respect to each class of claims or interests that is impaired under,
and has not accepted, the plan.”129
127 	Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 261:11-262:11
(“And why pay the convenience class 90 cents on the dollar? MR. MILLIGAN: I mean, A,
because they’re getting payment sooner. Because if they had to ride along until, you know,
this -- the retained claims are litigated, et cetera, it would be, you know, years. And it’s
common, very common for folks to take a discount for early payment. And it also lined up
and was consistent with the offer that we made to the subcontractors to pay 90 percent of
their scheduled claims. Q: And you heard in opening that the Panache parties believe the
debtor has got enough money to pay all these people in full. What’s your response to that?
A: Well, I mean, they do. It’s spending somebody else’s money. We have unknowns about
what the future liabilities are going to be. We have more than $26,000 of cash now since the
subs didn’t take those offers. But we’ve got the unknown with respect to the City of Austin
litigation on the industrial site, what that's going to turn into. You know, there are other
contingencies. We still don’t know what the fix and resolution is on the -- on the, this deal.
So there’s still, you know, lots of open variables.”).
128 	Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 261:20-262:8.
129 	11 U.S.C. § 1129(b)(1).
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1. Unfair Discrimination
The Panache Parties argue that the Plan unfairly discriminates against AFMN
in Class 3 and Panache in Class 4 by allowing Romspen’s first and second lien claims
and providing better treatment to creditors of equal propriety who have similar
claims.130 They contend that by forcing AFMN and Panache to receive distribution
in Class 11, but giving Classes 6–9 the option of receiving 90% of their undisputed
claims and 75% of their disputed claims, and by simply paying Class 10 90% of their
claims, the Plan cannot be confirmed due to unfair discrimination.
Courts look at the facts and circumstances of a case to determine whether
unfair discrimination exists.131 As discussed above, given the facts of this case and
the serious distrust and animosity between the parties, along with the very close
relationship between Mr. Zarafshani and the non-accepting subcontractors, the Court
finds that the disparate treatment of these claims is not unfair.
2. Fair & Equitable/Absolute Priority Rule
The Panache Parties argue that the Plan is not fair and equitable because it
allows Reomaster to retain its equity interests in violation of the absolute priority
rule set forth in 11 U.S.C. § 1129(b)(2)(B).132 The absolute priority rule requires the
plan to provide that creditors in senior classes get paid before creditors in junior
classes. 133 The Panache Parties contend that because Reomaster, a pre-petition
equity interest holder, will retain control over the Reorganized Debtor and obtain
100% of the equity, the Plan violates the absolute priority rule. But the Panache
Parties’ argument ignores or dismisses that Reomaster’s original equity interests are
extinguished by the Plan. 134 The rights Reomaster will obtain to equity in the
Reorganized Debtor are by virtue of its $5.4 million winning bid from the equity
auction. As discussed above, the Court finds that these equity interests were
appropriately marketed and that the equity auction was conducted in good faith.
Thus, the Court finds that the Plan is does not violate the absolute priority rule and
is fair and equitable as to the dissenting creditors.
130 	Main Case, ECF No. 323, ¶ 36-38 (Panache Parties’ Obj. to Confirmation).
131 	In re Cypresswood Land Partners, 409 B.R. 396, 434 (Bankr. S.D. Tex. 2009).
132 	11 U.S.C. § 1129(b)(2)(B).
133 	Cypresswood, 409 B.R. at 419.
134 	Main Case, ECF No. 288, p. 14 (Plan - Class 12 treatment).
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II. 	The Court will explain why the Panache Parties have standing to bring
their 	Equitable 	Subordination 	and 	Recharacterization 	claims 	in 	a
separate opinion.
The Court acknowledges the Romspen Parties’ continued objection to the
Panache Parties’ standing to bring the claims of equitable subordination and
recharacterization. The Court rules that the Panache Parties do have standing to bring
these claims for reasons that will be enumerated in a separate written opinion on the
motion for summary judgment.
III. 	Equitable Subordination is not warranted.
The Panache Parties seek equitable subordination under 11 U.S.C. § 510(c),
specifically, “full subordination of the [Romspen] Claims to all other creditors, with
corresponding subordination of Reomaster’s 75% equity behind Vesta Texas’s
25%.”135 This is after Panache, acting through Mr. Zarafshani, expressly agreed to
subordinate their interests to Romspen’s in the Binding Term Sheet—which was
extensively negotiated to settle, in part, the Panache Parties’ equitable subordination
claims from the Zen Garden Case.136 Relying on the superior lien promised in the
Binding Term Sheet, Romspen entered into a new lending arrangement with the
Debtor and provided funds to continue the redevelopment efforts, which were
necessary for the Project to begin making money and paying back its secured debt.137
After the Debtor entered into this new agreement with Romspen, Mr. Zarafshani
signed the Subordination Agreement on behalf of AFMN, wherein he, again, agreed
to subordinate AFMN’s claim (which is based on the Panache deficiency from the
Zen Garden case) to Romspen’s claims.138 So if the Panache Parties’ get their way,
Romspen, an entity that has provided the vast majority of the funding for the Project
over a number of years, will lose the secured position that it negotiated for and that
Mr. Zarafshani repeatedly agreed to.
135 	Adversary Proceeding, ECF No. 202 at 17 (Panache Parties’ Post-Trial Brief).
136 	Panache Ex. 324 ¶¶ 2, 14, Ex. A (Binding Term Sheet).
137 	Romspen Ex. 3 (Romspen Proof of Claim attaching loan agreement between the Debtor and
Romspen).
138 	Panache Ex. 3 (Subordination Agreement).
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“Equitable subordination is an unusual remedy which should be applied only
in limited circumstances.”139 This provision of the Bankruptcy Code “allows the
Court to look beyond the form of a dispute or transaction to its substance and to
rearrange the priority of claims based upon the conduct of the creditors.”140 The Fifth
Circuit has articulated guidance for when equitable subordination is appropriate:
“(1) the claimant must have engaged in inequitable conduct; (2) the misconduct must
have resulted in injury to the creditors of the bankrupt or conferred an unfair
advantage on the claimant; and (3) equitable subordination of the claim must not be
inconsistent with the provisions of the Bankruptcy Code.”141
Generally, three categories of conduct can warrant equitable subordination:
“(1) fraud, illegality, breach of fiduciary duties; (2) undercapitalization; and (3)
claimant’s 	use 	of 	the 	debtor 	as 	a 	mere 	instrumentality 	or 	alter 	ego.” 142
“Undercapitalization generally refers to the insufficiency of capital contributions
made to the debtor corporation.”143 However, “undercapitalization alone generally
is insufficient to justify equitable subordination.”144
Additionally, “a claim should be subordinated only to the extent necessary to
offset the harm which the debtor or its creditors have suffered as a result of the
inequitable conduct.”145 Crucially, “equitable subordination is remedial, not penal,
and in the absence of actual harm, equitable subordination is inappropriate.”146
139 	Fabricators, Inc. v. Tech. Fabricators, Inc. (In re Fabricators, Inc.), 926 F.2d 1458, 1464
(5th Cir. 1991).
140 	e2 Creditors Tr. v. Stephens, Inc. (In re e2 Communs., Inc.), 354 B.R. 368, 401 (Bankr. N.D.
Tex. 2006) (collecting cases). See also Fabricators, 926 F.2d at 1464 (discussing the
development of the doctrine of equitable subordination as “a policy against fraud and the
breach of the duties imposed on a fiduciary of the bankrupt.” (citing Pepper v. Litton,
308 U.S. 295, 311 (1939)).
141 	Wooley v. Faulkner (In re SI Restructuring, Inc.), 532 F.3d 355, 360 (5th Cir. 2008) (first
citing Benjamin v. Diamond (In re Mobile Steel Corp.), 563 F.2d 692, 700 (5th Cir. 1977),
and then citing Official Comm. of Unsecured Creditors v. Cajun Elec. Power Coop., Inc. (In
re Cajun Elec. Power Coop., Inc.), 119 F.3d 349, 357 (5th Cir. 1997)).
142 	Wilson v. Huffman (In re Missionary Baptist Found. of Am., Inc.), 712 F.2d 206, 212 (5th
Cir. 1983)
143 	Summit Coffee Co. v. Herby’s Foods, Inc. (In re Herby’s Foods), 2 F.3d 128, 131 (5th Cir.
1993).
144 	Id. at 132.
145 	SI Restructuring, Inc., 532 F.3d at 360–61 (citing Mobile Steel, 563 F.2d at 701).
146 	Id. at 361.
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To justify equitable subordination, the Court must make “specific findings
and conclusions with respect to each of the requirements.”147 Here, the Panache
Parties did not come close to meeting their burden.
The Panache Parties allege that the Romspen Parties engaged in inequitable
conduct 	by, 	among 	other 	things, 	disregarding 	corporate 	separateness,
undercapitalizing 	the 	Project, 	self-dealing, 	and 	failing 	to 	provide 	financial
transparency.148 The evidence, including Mr. Zarafshani’s own testimony about the
worth of the project, did not support that the project was undercapitalized and the
Court does not believe that it was. Even if it were, undercapitalization alone is not
enough.149
As to the other factors—fraud, illegality, breach of fiduciary duties, and
claimant’s use of the Debtor as a mere instrumentality or alter ego—there is
insufficient evidence to support them. Overall, the assertion that the Romspen
Parties acted inequitably is simply not supported by the substantial body of the
evidence. While the Panache Parties seize on intemperate language in internal
Romspen correspondence, actions speak louder than words: the Romspen Parties
wrote large checks on the project for a long time, and trusted Mr. Zarafshani and
Panache essentially without questioning for a long time—if anything, longer than
they perhaps should have. Eventually, understandably, perhaps belatedly, they lost
faith in Mr. Zarafshani. Even after Romspen began trying to exercise more control
over his spending, they continued paying bills, but they also became concerned about
the justification for many of them, including expenses from the contractors who were
extremely close to Mr. Zarafshani,150 and found the explanations they received
unsatisfactory.151 Their decision to stop pouring money into the Project without
147 	Fabricators, 926 F.2d at 1465 (citing Missionary Baptist Found. of Am., Inc., 712 F.2d at
212).
148 	See Adversary Proceeding, ECF No. 54-1 at 38–39 (Second Amended Complaint).
149 	Herby’s Foods, 2 F.3d at 132.
150 	See, e.g., Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 37:22-
38:3 (uncomfortable with some subcontractors constituting “the majority of the expenditures”
yet “we were having trouble quantifying that work”).
151 	See, e.g., Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 39:6-12
(uncomfortable with payments made on deadlines without adequate information despite
requests).
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more measure and consideration was reasonable and was not inequitable in light of
their very legitimate doubts about the Project and its progress.152
The Romspen Parties’ witnesses’ testimony was highly credible. There was
not 	evidence 	that 	the 	Romspen 	Parties 	intentionally 	sabotaged 	funding 	or
intentionally sabotaged the project or sought to induce Mr. Zarafshani or the other
Panache Parties to invest time and money in the Project with no reward or hid their
nefarious designs from him.
The Panache Parties have made much of the emails between the Romspen
partners and the language in those emails. But in context, what was apparent to the
Court was that the Romspen Parties engaged in good faith, robust debate, although
it was, at times, vulgar or unprofessional.153 The emails did not show a nefarious
scheme, but rather, an all-hands-on-deck attempt to make the best of what even Mr.
Zarafshani’s supporter within the team (Mr. Weldon) acknowledges had been a long
and unsuccessful situation. 154 Maybe the Romspen Parties should have made
different judgment calls or business decisions in this difficult situation; but whether
or not the better side won the debate on any particular business decision, the
decisions they made are well-supported and in good faith and by no means
inequitable or unfair.
The Court denies the Panache Parties’ claim for equitable subordination.
152 	Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 85:8-9 (“Didn’t
see where the funding was going into the project based on progress”); Trial Tr. (Day 5, April
28, 2026) at 113:12-15 (“We felt like we were going nowhere. It was like a black hole. … It
as like we were just putting money in and it seemed like we were making no discernible
progress.”).
153 	Adversary Proceeding ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 70:2-15 (expressing
some regret at not being “more artful in my prose” but emphasizing the importance of free
exchange of views within the organization’s decision-making).
154 	Regarding Panache’s Ex. 4, for instance, Mr. Roitman gave a lengthy, detailed, and credible
account for the context of this email and the sentiments expressed therein. See Adversary
Proceeding, ECF No. 192, Trial Tr. (Day 5, April 28, 2026) at 75 and following. The Court
also notes that this email was forwarded to Mr. Zarafshani and the Court does not find
credible any suggestion that he did not read it—and this was months before he entered into
the Binding Term Sheet.
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IV. 	Recharacterization is not warranted.
In addition to or in the alternative from equitable subordination, the Panache
Parties ask the Court to “recharacterize the [Romspen] claims as equity.” 155
Recharacterization is “part of the bankruptcy courts’ authority to allow and disallow
claims under 11 U.S.C. § 502.”156 The Court looks to state law to determine whether
a claim is enforceable against the debtor.157 If state law classifies a claim as equity
rather than debt, then the bankruptcy court is required to recharacterize the claim
rather than disallow it.158 Under Texas law, the factors for recharacterization of debt
as equity are:
(1) the intent of the parties; (2) the identity between creditors and
shareholders; (3) the extent of participation in management by the
holder of the instrument; (4) the ability of the corporation to obtain
funds from outside sources; (5) the ‘thinness’ of the capital structure in
relation to debt; (6) the risk involved; (7) the formal indicia of the
arrangement; (8) the relative position of the obligees as to other
creditors regarding the payment of interest and principal; (9) the voting
power of the holder of the instrument; (10) the provision of a fixed rate
of interest; (11) a contingency on the obligation to repay; (12) the
source of the interest payments; (13) the presence or absence of a fixed
maturity date; (14) a provision for redemption by the corporation; (15)
a provision for redemption at the option of the holder; and (16) the
timing of the advance with reference to the organization of the
corporation.159
155 	Adversary Proceeding, ECF No. 202 at 21 (Panache Parties’ Post-Trial Brief).
156 	Grossman v. Lothian Oil Inc. (In re Lothian Oil Inc.), 650 F.3d 539, 542 (5th Cir. 2011).
157 	Id. at 543 (citing 11 U.S.C. § 502(b); Butner v. United States, 440 U.S. 48, 54 (1979)).
158 	Id.
159 	In re Mangia Pizza Invs., LP, 480 B.R. 669, 707 (Bankr. W.D. Tex. 2012) (quoting Fin Hay
Realty Co. v. United States, 398 F.2d 694, 696 (3d Cir. 1968)). The Fin Hay Realty Co.
factors are incorporated into Texas law by Arch Petrol. v. Sharp, 958 S.W.2d 475, 477 n.3
(Tex. App.—Austin 1997, no pet.). See Mangia Pizza, 480 B.R. at 706–07 (citing Lothian
Oil Inc., 650 F.3d 539).
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“In applying these tests, we ‘consider all the factors and weigh the evidence favoring
characterization of the [interest] as debt or equity, while realizing that the various
factors are not of equal significance and that no one factor is controlling.’”160
Here, 	the 	parties 	seem 	to 	agree 	that 	one 	Fin 	Hay 	factor 	supports
recharacterization: the thinness of the Debtor’s capital structure.161 But even that is
overstated by the Panache Parties. The Panache Parties argue that “No informed
outside lender would advance funds to a single-asset entity with $750 of equity, no
working capital, and existing debt of more than twice the asset’s purchase price.”162
However, the Romspen Parties argue, and the Court agrees, that the capital structure
was what these very parties bargained for and agreed to in the Binding Term Sheet.
If Mr. Zarafshani made a deal he regrets, that is not grounds for recharacterization
(and as the Court noted at trial, Romspen likely regrets the deal it made, too, given
the size and length of its investment in this Property with essentially no return).
In terms of capitalization, the Court finds that this deal was not unusual for
real estate development transactions. Of course, the forced-sale or liquidation value
of the property at the time was not very high, but all agreed that the Property had a
lot of upside, if the development could be managed properly. The Court lacks
sufficient evidence to arrive at a valuation as of the time of these transactions, but it
is confident saying that after weighing the risks, the equity had some meaningful
value. True, at the time they entered into the deal, all knew that it was risky—but the
payoffs could be huge. Business people, investors, and developers take those risks
all the time. The Court has seen sophisticated business people think there was still
equity value in many less hopeful situations than this one. Mr. Zarafshani stood to
make a lot of money if things had gone well, but he knew perfectly well—and agreed
in multiple documents—that his claims were subordinate to a lot of money that
160 	Lothian Oil Inc., 650 F.3d at 544 (quoting Estate of Mixon v. United States, 464 F.2d 394,
402 (5th Cir. 1972)).
161 	Adversary Proceeding, ECF No. 201 at 3 (Romspen Parties’ Closing Brief); ECF No. 206 at
19–20 (Panache Parties’ Post-Trial Brief).
162 	Adversary Proceeding, ECF No. 206 at 21 (Panache Parties’ Post-Trial Brief - citing
Romspen Trial Brief, ECF 178 ¶ 19(5); Mangia Pizza, 480 B.R. at 707, 711; ECF No, 190,
Trial Tr. (Day 3, April 24, 2026) 178:14–20, 178:24–179:6, 179:3–6, 179:11–180:3, 180:17
20).
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Romspen had put into this and that came prior to any money being owed to him or
his affiliated entities.
The Romspen Parties concede certain of the Fin Hay factors as neutral:
identity between shareholders and creditors, source of interest payments, and the
timing of advances in relation to Debtor’s formation (as to the Romspen Deficiency
Claim).163
The Panache Parties argue that the “identity-of-interest” factor is not neutral
and is in favor of recharacterization. In support of its argument, Panache points the
Court to the fact that the same six partners individually invested in the Romspen
fund and controlled the fund and Reomaster, all of which operated under the same
roof as the Debtor, RIC (Austin). The testimony at trial supported this contention:
Mr. Roitman previously referred to the Romspen entities as a “spaghetti org chart”164
and Mr. Weldon and Mr. Oelbaum each discussed the various “hats” the partners
wore when representing each entity and the lack of formal restrictions on their
roles.165 It is also true that the partners each had a financial stake in the company,
but the fund was a large one and the Panache Parties seem to have generally
exaggerated the partners’ ability to collect on their personal investments on the basis
of this particular project. In addition, there was credible testimony that there is
currently a cessation on granting redemptions requested by investors and that any
cash recovered by Romspen could not immediately go to any investor.166 In any case,
163 	Adversary Proceeding, ECF No. 201 at 6–7 (Romspen Parties’ Closing Brief).
164 	Adversary Proceeding, ECF No. 192, Trial Tr. (Day 5, April 28, 2026) at 10:12–16 (“In fact,
I asked you about the structure of Romspen and its various entities, and you described it as
a spaghetti pork chop. A Well, I think that's a bit of a typo. I think it was a spaghetti org
chart.”).
165 	Adversary Proceeding, ECF No. 189, Trial Tr. (Day 2, April 23, 2026) at 232:23–24 (“I was
holding a hat in RIC, Romspen Investment Corp, and in RIC (Austin).”); ECF No. 190, Trial
Tr. (Day 3, April 24, 2026) at 159:20 (“Sorry. There’s a lot of hat moving there.”); 160:2–4
(“It would be hard in certain circumstances to do that, but at all times, I would think that
we’re acting in the best interests of all of the entities that we represent.”).
166 	Adversary Proceeding, ECF No. 190, Trial Tr. (Day 4, April 27, 2026) at 56:19–57:16 (“So
if a dollar is recovered from an RMLP loan and they collect it into RMLP, that dollar doesn't
immediately get distributed to investors, right? A: No. Q: And there’s been discussion about
this notion of liquidity and redemptions. A: Correct. Q: And it’s the redemption process
through which investors would be recovering funds, right? A: Yes. Q: And I think you --
your testimony was that at the fund level there's no new investors that are able to invest
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the Court believes that the record reflects that the Romspen professionals were
engaging in good faith efforts to try to move this Project forward, including by more
than amply funding it for quite a long time with a very free hand and trying to, as
one witness memorably put it, “maximize the value of the property, to spend the
most efficiently as we could to get there,” because “a rising ride lifts all boats.”167
The Court does not weigh this factor heavily under the circumstances.
After considering the remaining factors, the Court finds that they support
denying recharacterization. The intent of the parties (factor 1), as reflected in the
Binding Term Sheet and Subordination Agreement that Mr. Zarafshani and/or his
entities entered, was always and obviously that the amounts owed to Romspen would
be debt.168 If fact, in the Binding Term Sheet, Panache expressly agreed to the
Debtor’s assumption of the Romspen Deficiency Claim.169 These documents also
formalized the agreements between the parties (factor 7); this was not a handshake
deal. This was a highly negotiated resolution of a dispute between experienced and
sophisticated parties that is clearly an attempt to resolve a bad situation, which would
only be made worse (and more expensive) by continued fighting.
Credible testimony also convinces the Court that the Romspen Parties were
supportive of third-party financing (factor 4).170 In fact, the Binding Term Sheet
originally contemplated third-party financing for the Debtor, although it also
money in, right? A: Correct. Q: And at the fund level, there are limitations or restrictions or
maybe even cessations on granting redemptions requested by investors. Is that right? A
Currently a cessation, yes. Q: So if RMLP recovers cash as a result of the RIC (Austin)
project – A: Yes. Q: -- is that cash immediately going to any investor? A: It cannot.”).
167 	Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 64: 11-12.
168 	Panache Exs. 324 (Binding Term Sheet); 3 (Subordination Agreement).
169 	Panache Ex. 324 ¶ 14 (“Panache and Romspen shall enter into new capitalization documents,
including without limitation, an intercreditor agreement whereby the New Owner assumes
the financial obligations for the Romspen Deficiency Claim and the Panache Deficiency
Claim.”).
170 	Adversary Proceeding, ECF No. 189, Trial Tr. (Day 2, April 23, 2026) at 107:6-9 (“Was
RMLP supportive of obtaining third-party financing so that -- as set forth in the binding term
sheet? MR. WELDON: Yes.”); 13:12-16 (third-party lender would want the information
Romspen was requesting but had not received, “if not more”); Trial Tr. (Day 4, April 27,
2026) at 7-11 (third party financing unlikely without information).
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addressed a contingency where Romspen acted as the lender.171 In all, the loan
documents formalizing the agreement between the parties appear to be fairly
standard and in line with the Binding Term Sheet: Romspen negotiated a superior
lien position to assure (to the extent possible) that it would be repaid, there is a fixed
rate of interest (10%), a fixed maturity date (December 31, 2027), and a firm
obligation to repay (factors 8, 10, 11, 13).172 These factors suggest that the parties
always intended and acted as though the money obtained from Romspen was debt,
not equity.
While the financing was risky (factor 6) given the history of the Project and
condition of the property, Romspen carefully maintained its senior position and its
security interest. Even in the poor shape in which it currently lies, the property has
been appraised a more than $30 million and it obviously has considerable upside.
Again, 	the 	Court 	has 	seen 	much 	riskier 	situations 	without 	any 	cause 	for
recharacterization. Further, Mr. Zarafshani’s own rosy estimates of the past are in
considerable tension with the Panache Parties’ claim now that a senior secured
position was so shaky as to support recharacterization. Contrary to Panache’s
contentions, the Court finds that, under these unique circumstances, this factor also
does not support recharacterization.
For these reasons, the Court easily finds that the recharacterization cause of
action should be denied.
V. 	The tortious interference claims against Panache, Vesta Texas, and Mr.
Zarafshani must be denied because they are not strangers to the contract
with which they allegedly interfered.
Romspen brings a claim of tortious interference against Panache, Vesta Texas,
and Adam Zarafshani, asserting that the filing of this adversary case seeking
recharacterization and subordination tortiously interfered with the Subordination
171 	Panache Exs. 324 ¶ 2 (“The funding for the sale proceeds paid to Romspen or Romspen SPE
for the New Owner for title to the Construction Project will be cash proceeds obtained from
third party financing.”); Ex. A (referring to a third-party loan).
172 	See generally Romspen Ex. 3, Ex. A (Loan agreement between RIC (Austin) LLC and
Romspen).
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Agreement.173 The named plaintiffs on the live pleading in this case are Panache,
AFMN, and Vesta Texas. Adam Zarafshani is not a plaintiff in this adversary
proceeding.174
Under Texas law, “The elements of a claim for tortious interference with an
existing contract are ‘(1) the existence of a contract subject to interference; (2)
willful and intentional interference; (3) the willful and intentional interference
caused damage; and (4) actual damage or loss occurred.’”175 A party cannot recover
for tortious interference if it does not possess legal rights under the contract.176
“To be legally capable of tortious interference, the defendant must be a
stranger to the contract with which he allegedly interfered.”177 Panache, Vesta Texas,
and Adam Zarafshani are not directly parties to the Subordination Agreement, which
was 	between 	AFMN 	Investment, 	LLC 	and 	Romspen 	Mortgage 	Limited
Partnership.178
However, the analysis does not end there. It is common sense that corporations
can only act through their human agents.179 When it is alleged that a corporate agent
defendant induced a corporation to breach a contract, “the alleged act of interference
must be performed in furtherance of the defendant’s personal interests so as to
preserve the logically necessary rule that a party cannot tortiously interfere with its
own contract.”180 Therefore, it is the plaintiff’s burden to prove “that the defendant
acted in a fashion so contrary to the corporation’s best interests that his actions could
173 	Adversary Proceeding, ECF No. 30 at 9 (Romspen First Am. Counterclaims and Third-Party
Claims - “Zarafshani caused Panache, Vesta Texas, and Junior Lender to initiate the
Adversary Proceeding. Zarafshani, and thus Panache and Vesta Texas, knew and intended
that the Adversary Proceeding would interfere with Senior Lender’s rights under the SIA.”).
174 	Adversary Proceeding, ECF No. 54-1 (Second Amended Complaint).
175 	Inwood Nat’l Bank v. Fagin, 706 S.W.3d 342, 347 (Tex. 2025) (quoting Exxon Mobil Corp.
v. Rincones, 520 S.W.3d 572, 588 (Tex. 2017)).
176 	Id. (quoting Associated Indem. Corp. v. CAT Contracting Inc., 964 S.W.2d 276, 288 (Tex.
1998)) (collecting cases).
177 	Cmty. Health Sys. Prof. Servs. Corp. v. Hansen, 525 S.W.3d 671, 690 (Tex. 2017) (citing
Holloway v. Skinner, 898 S.W.2d 793, 795–96 (Tex. 1995)).
178 	Panache Ex. 3. Obviously, AFMN is not a stranger to this contract and therefore was not
sued under this theory.
179 	E.g., Holloway, 898 S.W.2d at 795.
180 	Id. at 796.
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only have been motivated by personal interests.”181 “A corporate officer’s mixed
motives—to benefit both himself and the corporation—are insufficient to establish
liability.” 182 When determining whether the corporate officer acted against the
corporation’s interests, the Court is to consider the corporation’s “evaluation of the
agent’s actions.”183 “If the principal ‘does not complain about its agent’s actions,
then 	the 	agent 	cannot 	be 	held 	to 	have 	acted 	contrary 	to 	the 	corporation’s
interests.’”184
a. Adam Zarafshani is not liable for tortious interference in his
personal or corporate agent capacities.
Here, Mr. Zarafshani is not liable for tortious interference in his individual
capacity. He is not a plaintiff in the adversary proceeding. 185 The conduct that
allegedly interfered with the contract was the adversary proceeding. He, as himself,
did not file the adversary proceeding.
Mr. Zarafshani is also not liable for tortious interference in his capacity as a
corporate agent of Panache or of Vesta Texas. While Mr. Zarafshani did concede
that he will receive some personal benefit if the adversary proceeding is successful,
mixed motives are not enough.186 Panache and Vesta Texas both stand to benefit if
they succeed on their claims in this lawsuit. Therefore, it cannot be said that Mr.
Zarafshani acted “only in his own interest and against the company’s interest.”187
Further, neither Panache nor Vesta Texas have complained about Mr. Zarafshani’s
conduct, as they have each secured separate counsel from Mr. Zarafshani and have
continued to pursue this case. For these reasons, the claim for tortious interference
against Mr. Zarafshani is denied.
181 	Id.; see also Cmty. Health Sys. Prof. Servs. Corp., 525 S.W.3d at 691.
182 	Cmty Health Sys. Prof. Servs. Corp., 525 S.W.3d at 695 (quoting Powell Indus., Inc. v. Allen.,
985 S.W.2d 455, 457 (Tex. 1998)).
183 	Id. at 695 (citing Allen, 985 S.W.2d at 457).
184 	Id. (quoting Allen, 985 S.W.2d at 457).
185 	See Adversary Proceeding, ECF No. 54-1 (Second Amended Complaint).
186 	See, e.g., Allen, 985 S.W.2d at 457 (“[T]he mere existence of a personal stake in the outcome
is insufficient to show that the defendant committed an act of willful or intentional
interference.” (citing Holloway, 898 S.W.2d at 796)).
187 	Id. (citing Holloway, 898 S.W.2d at 796) (emphasis in original).
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The Court recognizes the arguable inequity of allowing Mr. Zarafshani to
embark upon, and to have his other affiliated entities embark upon, a course of action
he agreed through another entity not to, all to the significant detriment of a
contractual counterparty. But that is the law as this Court understands it. (And of
course, the contracts could have bound him personally as well as his affiliates, but
they did not.)
b. Panache is not liable for tortious interference because AFMN is its
subsidiary.
AFMN, a signatory to the contract, is a subsidiary of Panache.188 There is a
split of authority among the Texas Courts of Appeal 189 as to whether a parent
corporation can be liable for interfering with the contracts of its subsidiaries, and the
Supreme Court of Texas has not yet weighed in on the issue.190 In ProTradeNet,
LLC v. Predictive Profiles, Inc., the United States District Court for the Western
District of Texas surveyed the law on this issue.191 Relying on “Texas appellate court
precedent, Fifth Circuit precedent, United States Supreme Court precedent, and
Western District of Texas precedent,” the ProTradeNet court held that “a corporate
parent is incapable of tortiously interfering with the contracts of its subsidiary.”192
This Court agrees with ProTradeNet. Because AFMN is a subsidiary of Panache,
Panache’s economic interests are so aligned with AFMN that Panache is incapable
188 	Adversary Proceeding, ECF No. 189, Trial Tr. (Day 2, April 23, 2026) 296:23–297:3 (“Q:
There’s AFMN, which is another single purpose entity that you formed and — to hold the
Panache’s removable claim, right? A: I caused it to be formed, yes. Q: All right. But it’s
owned by Panache. A: Its single member is Panache Development.”).
189 	More generally, there is a split of authority on this issue across the country, including whether
a parent company can interfere with its subsidiary’s contracts at all, or whether it is just
privileged to do so. See generally Valores Corporativos, S.A. de C.V. v. McLane Co., Inc.,
945 S.W.2d 160, 167 (Tex. App.—San Antonio 1997, writ denied).
190 	E.g., Cleveland Reg’l Med. Ctr., L.P. v. Celtic Props. L.C., 323 S.W.3d 322, 348 (Tex.
App.—Beaumont 2010, pet.denied); Grizzle v. Tex. Comm. Bank, 38 S.W.3d 265, 286 (Tex.
App.—Dallas 2001), rev’d in part on other grounds, 96 S.W.3d 240 (Tex. 2002); H.S.M.
Acquisitions, Inc. v. West, 917 S.W.2d 872, 882–83 (Tex. App.—Corpus Christi 1996, writ
denied); Am. Med. Int’l v. Giurintano, 821 S.W.2d 331, 336 (Tex. App.—Houston [14th
Dist.] 1991, no writ); Valores Corporativos, S.A. de C.V, 945 S.W.2d 160.
191 	369 F.Supp. 3d 788, 791–92 (W.D. Tex. 2019).
192 	Id. at 793 (collecting cases).
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of tortiously interfering with AFMN’s contracts.193 The tortious interference claim
against Panache is dismissed.
c. 	Vesta Texas is not liable for tortious interference because its
interests are too closely aligned with (and even subject to the
control of) AFMN, Panache, and Mr. Zarafshani.
Vesta Texas is a single-asset entity that holds a 25% interest in the Debtor,
RIC (Austin).194 Vesta Texas is managed by Mr. Zarafshani and his wife.195 Mr.
Zarafshani is both a co-member and a co-manager of Vesta Texas.196
“[T]here can be no tortious interference when there is a complete identity of
interests between a party to a contract and the defendant who is accused of
interfering with the contract.”197 On the facts of this case, the Court finds that such
a unity of interests exists between Vesta Texas and Panache, AFMN, and Mr.
Zarafshani. To find that Vesta Texas could tortiously interfere with the contract
while these other entities cannot would be an unsustainable result.198 Romspen’s
claim of tortious interference against Vesta Texas is dismissed.
193 	See Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752, 771 (1984) (“A parent and its
wholly owned subsidiary have a complete unity of interest. Their objectives are common,
not disparate; their general corporate actions are guided or determined not by two separate
corporate consciousnesses, but one.”).
194 	The evidence shows that the parties initially contemplated Vesta Texas having a 24% interest,
but when the RIC (Austin) LLC Agreement was formed, Vesta Texas ended up with a 25%
interest. Compare Panche Ex. 324, at 5 (Binding Term Sheet - “The equity interests of the
New Owner will be . . . 24% owned (whether directly or indirectly) by an entity exclusively
owned and controlled by Zarafshani or an estate-planning trust exclusively controlled by
Zarafshani (‘Zarafshani Owner Entity’)”), with Panache Ex. 54 (RIC (Austin) LLC
Agreement). The testimony at trial was mostly that Vesta Texas had a 25% interest. See, e.g.,
Adversary Proceeding, ECF No. 189, Trial Tr. (Day 2, April 23, 2026) at 234:14–17 (“And
that’s not the way it was ultimately done. It was done 75/25, correct? MR. WELDON: It was
negotiated and changed in the operating agreement, the LLC agreement.”).
195 	Adversary Proceeding, ECF No. 189, Trial Tr. (Day 2, April 23, 2026) at 296:18–22 (“Q:
And then there’s Vesta Texas. MR. ZARAFSHANI: Yes. Q: And that’s a single-purpose
entity that you formed to hold the minority ownership interest in RIC (Austin), right? A: My
wife and I, yes.”).
196 	Adversary Proceeding, ECF No. 139-17 at 3 (Romspen Motion for Summary Judgment).
197 	ProTradeNet, LLC, 369 F.Supp. 3d at 791 (citing Holloway, 898 S.W.2d at 797)
198 	See also Schoellkopf v. Pledger, 778 S.W2d 897, 903 (Tex. App.—Dallas 1989, writ denied)
(citing Baker v. Welsh, 735 S.W.2d 548, 550 (Tex. App.—Houston [1st Dist.] 1987, writ
denied)).
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VI. 	Because the predicate tort fails, the civil conspiracy count against AFMN,
Panache, Vesta Texas, and Mr. Zarafshani must fail.
Under Texas law, civil conspiracy is not an independent tort, but a theory of
vicarious liability that “requires some underlying wrong.”199 Thus, to recover on a
civil 	conspiracy 	claim, 	liability 	for 	an 	underlying 	intentional 	tort 	must 	be
established.200 However, as liability for tortious interference was not established
against any of the Panache parties, Romspen’s claim for civil conspiracy fails and is
dismissed.
VII. 	AFMN has breached the Subordination Agreement contract but the
Court will evaluate remedies at a later point.
Romspen alleges that AFMN breached the Subordination Agreement. The
Panache parties, in return, argue that (1) the Subordination Agreement was not
supported by adequate consideration; (2) the Subordination Agreement was entered
into under economic duress; and (3) AFMN’s performance was excused because of
prior material breach by the Romspen Parties.
To prove a breach of contract, the plaintiff must show “(1) a valid contract
exists; (2) the plaintiff performed or tendered performance as contractually required;
(3) the defendant breached the contract by failing to perform or tender performance
and contractually required; and (4) the plaintiff sustained damages due to the
breach.”201 Under Texas law, a party suing for breach of contract must elect to
recover either legal damages or the equitable remedy of specific performance.202
“Specific performance is not a separate cause of action but rather a substitute for
199 	Agar Corp., Inc. v. Electro Circuits Int’l, LLC, 580 S.W.3d 136, 141 (Tex. 2019).
200 	E.g., Firestone Steel Prods. Co. v. Barajas, 927 S.W.2d 608, 617 (Tex. 1996) (“Civil
conspiracy is an intentional tort. For a civil conspiracy to arise, the parties must be aware of
the harm or wrongful conduct at the beginning of the agreement. Because a conspiracy
requires intent, parties cannot conspire to be negligent.” (citations omitted) (first citing
Massey v. Armco Steel Co., 652 S.W.2d 932, 933 (Tex. 1983), and then citing Triplex
Commc’ns, Inc. v. Riley, 900 S.W.2d 716, 719 (Tex. 1995))).
201 	Pathfinder Oil & Gas, Inc. v. Great W. Drilling, Ltd., 574 S.W.3d 882, 890 (Tex. 2019)
(citing USAA Tex. Lloyds Co. v. Menchaca, 545 S.W.3d 479, 501 n.21 (Tex. 2018)).
202 	White Knight Dev., LLC v. Simmons, 718 S.W.3d 203, 209 (Tex. 2025) (citing Goldman v.
Olmstead, 414 S.W.3d 346, 361 (Tex. App.—Dallas 2013, pet. denied)).
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monetary damages when such damages would be inadequate.”203 To be entitled to
specific performance, a plaintiff must show that (1) money damages would be
inadequate, (2) the plaintiff was ready, willing, and able to perform under the
contract, and (3) the plaintiff performed, tendered performance of, or was excused
from performing its contractual obligations.204
First, the Court disagrees with the Panache Parties’ contention that the
Subordination Agreement was not supported by adequate consideration. This is a
simple analysis. The Subordination Agreement constrains all parties in various ways,
including Romspen.205 The exchange of money is not necessary to support a contract
with consideration. It is black-letter law that the voluntary foregoing of a legal right
is 	sufficient 	consideration. 206 Accordingly, 	there 	was 	consideration 	for 	the
Subordination Agreement. The Subordination Agreement was, then, a valid and
enforceable contract.
AFMN breached the Subordination Agreement. Under the Subordination
Agreement, AFMN agreed not to bring any “Enforcement Action” until Romspen’s
claim had been paid in full and after January 1, 2031, or until Romspen had
commenced an Enforcement Action. Yet, before any of these conditions had been
met, AFMN brought this adversary proceeding, an enforcement action as defined by
the Subordination Agreement. It also failed to follow Romspen’s instructions to vote
in favor the plan of reorganization in this case despite its obligation to do so under
the Subordination Agreement.207
The Court now turns to the Panache Parties’ defenses. Panache Parties argue
that the Subordination Agreement was entered into under economic duress. Under
Texas law, “A contract may be invalid or unenforceable by reason of economic
duress where undue or unjust advantage has been taken of a person’s economic
203 	Id. at 209 (citing Ifiesimama v. Haile, 522 S.W.3d 675, 685 (Tex. App.—Houston [1st Dist.]
2017, pet. denied); Scott v. Sebree, 986 S.W.2d 364, 368 (Tex. App.—Austin 1999, pet.
denied.)).
204 	Id. at 209; DiGuiseppe v. Lawler, 269 S.W. 588, 593–94, 599 (Tex. 2008).
205 	See, e.g., Panache Ex. 3 §§ 3(b). 8(c), (d), 10(a).
206 	E.g., Hamer v. Sidway, 27 N.E. 256 (1891); Leonard v. Texaco, Inc., 422 S.W.2d 160, 165
(Tex. 1967).
207 	Panache Ex. 3 § 3(d)(iv).
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necessity or distress to coerce him into making the agreement.”208 The elements of
economic duress are “(1) a threat to do something which a party threatening has no
legal right to do; (2) some illegal exaction or some fraud or deception; and (3)
imminent restraint such as to destroy free agency without present means of
protection.”209
Here, the evidence does not support a finding of economic duress. The
Subordination Agreement was negotiated at length by counsel representing both
parties as part of an intricate transactional structure that was itself a product of
multiple years of litigation surrounding the prior bankruptcy case;210 it was in fact
part of the parties’ joint efforts to button-up some of their paperwork that had been
left somewhat incomplete since the time of the last bankruptcy. The Subordination
Agreement was not signed under economic duress.
The Panache Parties also argue prior material breach, although neither they
nor the other side have provided much briefing or argument on this issue. Under
Texas law, “It is a fundamental principle of contract law that when one party to a
contract commits a material breach of that contract, the other party is discharged or
excused from further performance.”211 Crucially, while a material breach by the
other party excuses a party’s future performance, a nonmaterial breach does not.212
The Panache Parties’ arguments on material breach form a part of their general
“everything but the kitchen sink” approach to this case. They first alleged that the
material breach was Romspen including certain attorneys’ fees in its proof of claim
contrary to the parties’ agreement.213 But Romspen was never paid those fees, it
merely asserted them, and apparently both did so after this adversary proceeding was
208 	King v. Bishop, 879 S.W.2d 222, 224 (Tex. App.—Houston [14th Dist.] 1994, no writ)
(citing Brown v. Cain Chemical, Inc., 837 S.W.2d 239, 244 (Tex. App.—Houston [1st Dist.]
1992, writ denied)).
209 	Id. at 223–24 (citing Simpson v. MBank Dallas, N.A., 724 S.W.2d 102, 109 (Tex. App.—
Dallas 1987, writ ref’d n.r.e.)).
210 	See, e.g., Panache Ex. 324 ¶ 14 (discussing “capitalization documents” including an “inter
creditor agreement”).
211 	Bartush-Schnitzius Foods Co. v. Cimco Refrigeration, Inc., 518 S.W.3d 432, 436 (Tex. 2017)
(quoting Mustang Pipeline Co. v. Driver Pipeline Co., 134 S.W.3d 195, 196 (Tex. 2004)).
212 	Id. (citing Levine v. Steve Scharn Custom Homes, Inc., 448 S.W.3d 637, 654 (Tex. App.—
Houston [1st Dist.] 2014, pet. denied)).
213 	Adversary Proceeding, ECF No. 147 at pages 7-9 (Response and Objection to Romspen
Motion for Summary Judgment).
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filed and subsequently withdrew the request for these fees. This argument is all but
frivolous. Yet it was the only one cited in the Panache Parties’ response to
Romspen’s Motion for Summary Judgment on this breach of contract.214
After that extensive briefing, the Panache Parties then put up more alleged
material breaches to excuse the non-compliance with the Subordination Agreement.
But these other, belated alleged material breaches are equally unconvincing. One is
that because the Subordination Agreement requires both parties to comply with the
Binding Term Sheet (which includes fiduciary duties) Romspen’s alleged breaches
of fiduciary duties excuse the signatories from compliance with the Subordination
Agreement. But the Court finds here that Romspen did not behave inequitably or
breach its fiduciary duties and therefore this effort must fail. Another alleged
material breach was blocking third-party financing efforts. But the evidence doesn’t
support that allegation, as discussed above. There was ample evidence that certain
aspects of the Project, budget information, and other factors all stood in the way of
third-party financing and that Romspen was supportive of that financing. Yet another
alleged material breach is Romspen’s making the Panache Parties send personnel to
Kansas City to access the Debtor’s business records and refusing to make copies.
But pictures of the documents were apparently taken,215 and the Court believes
access was sufficient. In addition, of course, the majority of the really important
documents concerning Project progress were in the Panache Parties’ possession. If
this was a breach, which the Court doubts, it was not a material one.
Romspen has requested specific performance, damages, and attorney’s fees.
Specific 	performance 	would 	involve 	recognizing 	Romspen’s 	right 	to 	control
AFMN’s vote on the plan and requiring it in various other ways to comply with the
Subordination Agreement. Some of this relief may be moot, but some of it may be
warranted.
Damages may also be warranted in addition or in the alternative, for instance
in the form of additional and unnecessarily accrued interest and other costs that
would not have been incurred but from AFMN’s breach.
214 	See Adversary Proceeding, ECF No. 147 at pages 7-9.
215 	Adversary Proceeding, ECF No. 187, Trial Tr. (Day 1, April 22, 2026) at 120:16-18.
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Finally, Romspen argues that it is entitled to attorney’s fees under Texas Civil
Practice & Remedies code ch. 38. “To recover attorney’s fees under section 38.001,
a claimant must meet several prerequisites. The claimant must: (1) plead and prevail
on a claim for which attorney’s fees are permitted under section 38.001, (2) be
represented by an attorney, (3) present the claim to the opposing party or his agent,
and (4) demonstrate that the opposing party did not tender payment within thirty
days after the claim was presented.”216 “Reasonable attorney’s fees” are recoverable
for a breach of contract claim under § 38.001(b)(8). The Court believes that
Romspen is likely entitled to at least some attorney’s fees given this law.
The parties did not spend much time on remedies, and the Court is unclear on
their arguments on this point. The Court will enter a scheduling order regarding
remedies for the breach of contract and let the parties weigh in on what remedies
might be appropriate as well as how to determine attorney’s fees.
The Court also requests that the parties consider settling this issue if at all
possible. Given the potentially duplicative nature of any damages against debts
likely already owed in this case, and the potential mootness of specific performance
remedies, the Court is hopeful that further litigation might be unnecessary.
VIII. 	The objections to the Romspen Claims and secured status are overruled.
The Panache Parties state that they “have reviewed the Romspen Claims and
find them objectionable” and ask the Court to sustain its objections and deny the
Romspen 	claims. 217 Specifically, 	the 	Panache 	Parties 	“dispute 	the 	amount,
calculation, priority, perfection, and secured status of the Romspen Claims” and
assert that “Romspen failed to credit the ZG Canada Collateral to the indebtedness
asserted in the Romspen Claims and asserted unearned interest and fees.”218
As discussed above, the Romspen Parties filed two proofs of claim, the
Romspen Loan Claim and the Romspen Deficiency Claim. The Romspen Loan
Claim is for $110,320,744.29 at 10% interest. This claim purports to be secured by
real estate and “all personal property.” The Romspen Deficiency Claim is for
216 	1/2 Price Checks Cashed v. United Auto Ins. Co., 344 S.W.3d 378, 383 (Tex. 2011) (citing
Tex. Civ. Prac. & Rem. Code §§ 38.001, 38.001).
217 	Adversary Proceeding, ECF No. 54-1 at 40 (Second Amended Complaint).
218 	Adversary Proceeding, ECF No. 54-1 at 40 (Second Amended Complaint).
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$99,664,917.44 at 10% interest, also secured by real estate and “all personal
property.” Both proofs of claim attach evidence of their respective loans and
documentation about the security interests.
The Court overrules the Panache Parties’s objections. Under Federal Rule of
Bankruptcy Procedure 3001(f), “A proof of claim signed and filed in accordance
with these rules is prima facie evidence of the claim’s validity and amount.” “The
claimant will prevail unless the objecting party produces evidence sufficient to rebut
the prima facie validity of the claim.”219 Here, Panache did not provide sufficient
evidence to rebut Romspen’s prima facie case and the extensive testimony and
documentation that support the claim including its status as secured. The Panache
Parties’ objection to the Romspen claims is overruled.
Conclusion
For the reasons stated above, the Plan must be confirmed, the equitable
subordination and recharacterization efforts must fail, the claim objection must fail,
and while a breach of contract was established, awarding appropriate remedies for
that breach will require further briefing.
The Court wishes to express, again, its appreciation for the professionalism of
the lawyers and support staff who were involved with the trial of this important
matter. The Court recognizes the demands that such trials put on everyone, both
professionally and personally, and appreciates the frank (and occasionally fierce) but
cooperative and courteous demeanor exhibited in the courtroom.
# # #
219 	In re Palms at Water’s Edge, L.P., 334 B.R. 853, 857 (W.D. Bankr. 2005) (citing In re
Fidelity Holding Co., Ltd., 837 F.2d 696, 698 (5th Cir.1988)).
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