IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
WATERFALL TOWERS, No. 93-11002
Memorandum of Decision
This is a single-asset real property Chapter 11 case involving a large office building. The
principal creditor is Connecticut Mutual Life Insurance Company, owed $6 million and secured
by the property.
The debtor's plan of reorganization is pending before the court. Apparently fearing that the
plan is fair and reasonable as to it, and therefore confirmable over its objection, Connecticut
Mutual bought up enough unsecured claims to block confirmation and voted them against the
plan. Now before the court is the debtor's motion to disqualify the votes for bad faith pursuant
to section 1126(e).
The letter sent out by Connecticut Mutual to the unsecured creditors contained at least two
falsehoods. First, it stated that "If the Court does not approve the plan, Waterfall is not offering
to pay you anything." This was not true. If the court did not approve the plan, Waterfall could
and probably would have tried again. The sentence was intended to scare the creditors into
selling their claims by giving the creditors the false impression that the debtor was not
interested in paying their claims absent confirmation of the precise plan before the court.
Undisclosed was the fact that the debtor, unlike Connecticut Mutual, was forbidden by law
from paying the creditors without a confirmed plan.
Second, Connecticut Mutual falsely told the creditors that its motives were altruistic: "We
do not want you to be delayed in receiving payment on your claim, however, and are therefore
willing to pay off your claim immediately in cash." The truth was that Connecticut Mutual was
acting in its own selfish interests to torpedo the debtor's plan. While such motives are not
improper in themselves, the air of sainthood adopted by Connecticut Mutual was a deception.
Pursuant to section 1126(e), a vote can be disallowed if it was solicited or procured in bad
faith. A vote based on a claim procured by false or misleading statements and half-truths
cannot be considered cast in good faith. Accordingly, the debtor's motion will be granted.
Counsel for the debtor shall submit an appropriate form of order.
Dated: April 19, 1994 _______________________