United States: Milbank Achieves Dismissal Of Appeal Seeking To Undo Confirmation Of Its Client's $1.2B Chapter 11 Bankruptcy Plan

Milbank, Tweed, Hadley & McCloy LLP recently secured a dismissal of an appeal seeking to undo the confirmed $1.2 billion chapter 11 bankruptcy plans that its client JD Holdings, L.L.C. put forward for over 70 debtors affiliated with John Q. Hammons Hotels and Resorts. The appeal was dismissed on the equitable mootness grounds argued by Milbank. JD Holdings was the largest creditor in the billion-dollar bankruptcy case, and as a result of the confirmation of its plans—which occurred just four months after the termination of exclusivity—JD Holdings has obtained substantially all of the debtors' assets.

The appeal was brought by creditors that had security interests in 26 of Debtors' 35 hotels (the "CMBS Lenders") on the grounds that, among other things, the plans do not require JD Holdings to immediately pay the disputed portions of the CMBS Lenders' claims, including their claims for default interest and yield maintenance, do not require JD Holdings to escrow funds securing JD Holdings' potential obligation to pay these disputed sums, and impermissibly effect a substantive consolidation of Debtors.  JD Holdings argued, and the Bankruptcy Appellate Panel of the Tenth Circuit agreed, that the court should dismiss the appeal as equitably moot because, even if the relief sought by the CMBS Lenders—unwinding the plans—was possible, it would be inequitable. For example, pursuant to those plans, JD Holdings already had paid approximately $397 million to over 260 claimants to pay their claims in full, had paid approximately $426 million on other claims, and had assumed management of all 35 hotels. In ruling in JD Holdings' favor, the court determined that reversal would create a "nightmarish situation" both for creditors and for the bankruptcy court, and that unwinding the plans would postpone reorganization and likely would lead to diminishment of the plans' assets and claims.

The Milbank team on the appeal was led by partners Scott A. Edelman (Litigation & Arbitration), Mark Shinderman (Financial Restructuring) and Jed Schwartz (Litigation & Arbitration), with support from associates Daniel White, Andrew Porter, and Courtney Brown.

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