FILED JUN 21 2023 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

In re: BAP No. AZ-22-1231-CLB GPMI, CO., Debtor. Bk. No. 2:22-bk-00150-EPB

ALBAAD USA, INC., Appellant, v. MEMORANDUM* GPMI, CO.; ENVOY SOLUTIONS, LLC; NFS LEASING, INC.; OFFICIAL UNSECURED CREDITORS COMMITTEE; YDB CAPITAL, LLC; YARRON BENDOR; SERENE INVESTMENT MANAGEMENT, LLC; FSW FUNDING, Appellees.

Appeal from the United States Bankruptcy Court for the District of Arizona Eddward P. Ballinger Jr., Chief Bankruptcy Judge, Presiding

Before: CORBIT, LAFFERTY, and BRAND, Bankruptcy Judges.

* This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. INTRODUCTION

Appellant and unsecured creditor Albaad USA, Inc. (“Albaad”),

appeals the confirmation of debtor and appellee GPMI, Co.’s (“GPMI”)

chapter 111 plan. Because we find no error, we AFFIRM.

FACTS

A. GPMI

GPMI manufactures wet wipe cleaning products and supplies its

products to major wholesalers and retailers. Yarron Bendor, founder and

CEO of GPMI, opened GPMI in 1989. GPMI was successful for many years.

B. The Albaad Contract

In the fall of 2019, Albaad, 2 the third largest global wet wipe

manufacturer at the time, contracted with GPMI to have GPMI

manufacture wipes for Albaad in the United States (the “Contract”). The

Contract was far larger than any manufacturing contract previously

entered into by GPMI. Per the terms of the Contract, Albaad committed to

ordering $80 million in products the first year and over $100 million in the

second year.

1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code,

, all “Rule” references are to the Federal Rules of Bankruptcy Procedure and all “Civil Rule” references are to the Federal Rules of Civil Procedure. 2 Albaad is an Israeli company and Albaad Massuot Yitzhak Ltd is Albaad’s

parent company. At the time of the Contract, Albaad was a publicly traded company on the Tel Aviv stock exchange with several locations in Europe and one American subsidiary located in North Carolina. 2 During negotiations, GPMI informed Albaad that in order to

successfully perform under the terms of the Contract and fulfill Albaad’s

large orders, it would need to expand its manufacturing facilities, add

specialized equipment, and increase its workforce. Albaad agreed to

advance GPMI $3,750,000.00 for its expansion. In exchange, GPMI

promised to repay the funds as credits against Albaad’s future orders.

Additionally, GPMI spent approximately $7,500,000 of its own capital to

“ensure it was ready to meet the Albaad contract.”

In late February 2021, GPMI began fulfilling its contractual

obligations by shipping products to Albaad. However, Albaad refused to

take receipt and pay for much of the product. Albaad’s end customer

rejected the wipes and terminated its purchase agreement with Albaad

after Albaad failed to obtain the necessary EPA and state-level product

registrations. Because Albaad had no customer to sell the wipes to, Albaad

refused the GPMI product and refused to pay GPMI $800,000 for the wipes

already produced. Additionally, Albaad informed GPMI that it would not

honor any of its future contractual commitments to GPMI. Repeated

attempts to resolve the dispute failed.

GPMI asserted that Albaad’s breach caused GPMI to: (i) lose over

$37,000,000 in 2021 budgeted revenue; (ii) incur storage expenses for the

privately labeled Albaad products; 3 (iii) fall behind on its regular customer

3 Approximately $17,000 per month for storage. 3 obligations; and (iv) incur ongoing significant fees for equipment leases

obtained solely to fulfill the Albaad Contract.

After Albaad failed to perform under the Contract, GPMI was in

financial crisis and engaged in extensive efforts to reorganize its business

and cut costs. GPMI’s cost-cutting measures included laying off more than

half the employees, returning leased equipment, terminating the 45,000

square-foot warehouse lease, and reducing administrative expenses.

However, the cost savings were not enough to significantly change GPMI’s

financial condition. Therefore, GPMI decided to hire MCA Financial

Group, Ltd. (“MCA”)4 as a financial consultant to assist GPMI with

identification of potential financing sources, investors, and/or purchasers.

Starting in the late summer of 2021, MCA solicited offers to purchase

equity in GPMI or to purchase GPMI’s assets from 32 qualified parties,

including at least 20 financial buyers and 12 strategic buyers in related

industries. Due diligence materials were provided to 15 prospective

purchasers who executed non-disclosure agreements. Ultimately,

negotiations progressed to formal letters of intent with two potential

buyers.

One of the final potential buyers was Albaad. As part of the due

diligence process, Albaad obtained GPMI’s confidential financial

4 MCA’s founder and primary consultant to GPMI, Morris Aaron, is a nationally recognized expert in the business advisory industry with over thirty years of experience in mergers and acquisitions, business valuation, and restructuring. 4 information. By late 2021, the parties were engaged in substantive

negotiations regarding the terms of a potential full acquisition by Albaad,

to the point that the parties were circulating draft term sheets. However, on

November 11, 2021, Albaad suddenly halted all negotiations with GPMI,

informing GPMI that it would be taking a “$10 million write-off” in its U.S.

operations and would no longer be pursuing “M&A activity in the U.S.” 5

C. Chapter 11 bankruptcy

On January 10, 2022, out of other options, GPMI filed a voluntary

chapter 11 petition. GPMI planned to either reorganize by securing capital

investment or by selling the business as a going concern. GPMI’s goal was

to continue operating as a debtor-in-possession (“DIP”).

Due to GPMI’s severe cash flow issues, the bankruptcy court

approved GPMI’s DIP motion to obtain emergency post-petition financing

from a third-party lender who had granted previous loans to GPMI. 6 The

bankruptcy court also approved GPMI’s request to retain MCA to allow

MCA to continue pursuing investors and/or purchasers.

The bankruptcy court appointed an official unsecured creditors’

committee, comprised of five trade creditors and material suppliers with

5 Albaad subsequently liquidated and sold its North America wipes manufacturing business to Guy & O’Neill. Guy & O’Neill was also one of GPMI’s prospective buyers and signed a Non-Disclosure Agreement. 6 The bankruptcy court authorized DIP financing up to $2.5 million from an

accounts receivable factoring credit facility, up to $2 million from an inventory credit facility, and up to $500,000, secured by liens on GPMI’s real and personal property. In March 2022, GPMI obtained replacement DIP financing. 5 total claims exceeding $2 million (“Committee”). The Committee was

described as “terrifically sophisticated” with “people in the industry that

are actually working in this industry every day,” who “know what

businesses are worth, what equipment is worth.” The Committee hired a

financial advisor with extensive experience and knowledge in the field of

complex business reorganization.

The Committee actively participated in marketing GPMI. The

Committee reported that, as of April 26, 2022, GPMI was “left with no

active interested parties, and GPMI's prospects for any reorganization or

sale appeared very grim and liquidation of the estate appeared imminent.”

Nonetheless, GPMI and MCA continued efforts to find investors

and/or purchasers. Several months later, the Committee was asked to

review a possible acquisition of GPMI by Envoy Solutions, LLC (“Envoy”)

for a purchase price of $4.3 million. The Committee approved of the

proposed purchase by Envoy. The Committee had “absolute confidence in

the marketing process,” and believed “that the marketing efforts were

thorough and persistent in the face of a difficult market, and that the Envoy

proposal represented the best potential for recovery to allowed unsecured

creditors.”

D. The chapter 11 plan

With the Committee’s approval and after more than a year of

marketing, GPMI reached an agreement to sell to Envoy pursuant to a plan

of reorganization. GPMI filed a chapter 11 plan on October 14, 2022, a first

6 amended plan on October 24th, and a second amended plan (“Plan”) on

October 31st. The Plan was filed within the extended period of exclusivity

provided by § 1121.7

Envoy proposed to fund the Plan by paying $4.3 million, in addition

to its previous payment of $400,000 in the form of a DIP loan. In return,

Envoy would receive 100 percent of the equity in the reorganized debtor.

In general, the Plan proposed a division of GPMI’s assets into two

separate entities: (1) a newly formed “Litigation Trust,” tasked with

prosecuting GPMI’s causes of action—including claims against Albaad8

and Michelin 9—and distributing litigation proceeds to unsecured

creditors; 10 and (2) the “Reorganized Debtor,” which would retain

7 The bankruptcy court approved GPMI’s unopposed motions to extend exclusivity under § 1121(b) and § 1121(c)(3) to October 14, 2022 and then December 14, 2022. 8 In October 2022, GPMI filed an adversary complaint against Albaad, (the

“Albaad Lawsuit”) asserting claims for breach of contract, breach of the covenant of good faith and fair dealing, and promissory estoppel. The Complaint alleged damages in excess of $19 million. The action is pending. 9 GPMI filed a Complaint against Michelin Lifestyle Ltd. and Michelin North

America, Inc. (collectively “Michelin”), asserting claims that Michelin breached an agreement to jointly develop and market consumer products under the Michelin name. GPMI developed the product over the course of a year, began manufacturing, and entered into a contract with Walmart to sell the product, but within weeks of fulfilling Walmart’s initial order, Michelin took actions to stop the manufacture and sale of the product. GPMI’s Complaint sought over $2 million in damages. The Complaint was dismissed by the Arizona District Court for lack of jurisdiction. GPMI filed a second complaint against Michelin North America, Inc., in London. The action is pending. 10 The Litigation Trust assumed all of Debtor’s liability to creditors holding

Allowed Claims and Allowed Administrative Expense Claims not otherwise satisfied by the Plan or assumed by Envoy. 7 ownership of all of GPMI’s other assets and operate GPMI’s business

operations as a going concern.

1. The Litigation Trust

The Plan proposed that the newly formed Litigation Trust would

initially be funded with $500,000 of Envoy’s $4.3 million purchase

payment. The money would allow the trustee of the Litigation Trust

(“Trustee”) to prosecute GPMI’s causes of actions against Michelin and

Albaad. Under the terms of the Litigation Trust, if the litigation was

successful, the Trustee would distribute proceeds to the claimants holding

allowed unsecured claims. Additionally, the Trustee would receive no

compensation until the unsecured creditors received payments equal to at

least 25% of their allowed claims. The Plan proposed that Bendor would

serve as the initial Trustee.

All creditors except Albaad supported Bendor serving as the initial

Trustee. Indeed, during negotiations, the Committee acknowledged that

unless the Trustee was successful in prosecuting the claims, there would be

no proceeds for payment on unsecured allowed claims. The Committee

agreed that Bendor was the best choice to serve as Trustee because of his

experience and knowledge. Notwithstanding the Committee’s agreement,

the Committee also wanted to ensure that the creditors would have some

on-going voice. Therefore, the Committee insisted on a “Trust Oversight

Committee” that would oversee and monitor the activities of the Trustee.

8 2. The Reorganized Debtor.

The Plan further proposed that the newly created Reorganized

Debtor would continue GPMI’s business operations as a manufacturer of

packaged wet wipes for the cleaning and automotive industries. The

Reorganized Debtor would be vested with GPMI’s operating assets free

and clear of all liens, claims, and encumbrances except the obligations

explicitly assumed in the Plan. The Plan terminated all GPMI shareholder

interests with respect to the Reorganized Debtor. However, the Plan

indicated that Envoy would seek to retain Bendor as an employee of the

Reorganized Debtor subject to a separately negotiated employment

contract.11

3. Classification of claims and voting

The Plan initially provided for eight classes.12 Relevant here is Class

6, which was solely comprised of all claims of Albaad, including the

Albaad proof of claim filed with the bankruptcy court. GPMI disputed

Albaad’s proof of claim which listed the debt as $13,069,027.20. However,

the court “temporarily allowed Albaad an unsecured claim of $3,800,000

11 On November 18, 2022, GPMI filed the employment agreements outlining the terms of Bendor’s employment with the Reorganized Debtor. 12 As confirmed, the Plan provided for nine classifications of claims. The classes,

as well as descriptions of their treatment, and resulting impairment, are set forth in the court's order confirming GPMI’s Plan. 9 for voting purposes.” Class 6 (Albaad)13 was impaired and rejected by the

Plan.14

E. First confirmation hearing

At the initial hearing on confirmation on November 18, 2022, the

bankruptcy court approved GPMI’s second amended disclosure statement,

conditionally approved GPMI’s settlement with creditor NFS Leasing, Inc.

regarding the purchase of some of the leased equipment, overruled class

2C’s objection to the Plan, and set an evidentiary hearing on Albaad’s

objections to the Plan.

Albaad’s objections to the Plan included an allegation that the Plan

violated § 1129(b)(2), the absolute priority rule, because (1) Bendor’s

employment was an impermissible benefit bestowed upon him based on

his former equity interest; and (2) GPMI failed to hire a broker to sell the

business and provide a professional valuation as required by the United

States Supreme Court’s holding in Bank of Am. Nat'l Trust & Sav. Ass'n v.

203 N. LaSalle St. P'ship,

(1999). Albaad also argued that the

Plan violated § 1129(a)(5) because Bendor’s appointment as Trustee of the

Litigation Trust was inconsistent with the interests of creditors and public

policy.

13 GPMI separated Albaad's claim from the class of other unsecured claims (Class 8) because Albaad’s claims were disputed and were subject to counterclaims and affirmative defenses that were actively being addressed in the Albaad Litigation. 14 Only one other class rejected the Plan; Class 2C – Eastern Shipping Worldwide.

10 F. Evidentiary Hearing

1. Alleged violations of § 1129(b) and the absolute priority rule.

Albaad argued that the Plan violated the absolute priority rule based

on Bendor’s post-confirmation employment with the Reorganized Debtor.

Specifically, Albaad asserted that because Bendor was a GPMI shareholder,

his post-confirmation employment bestowed a benefit that triggered the

open marketing testing required by LaSalle. Albaad argued that when old

equity continues to have an interest and influence in the new equity, LaSalle

required that GPMI adhere to specific marketing procedures. According to

Albaad, “203 North LaSalle triggers, basically, a separate inquiry, was this

actually a competitive process, or is this equity just handpicking what

happens to the assets.”

Albaad pointed to several alleged deficiencies in GPMI’s marketing

such as GPMI’s failure to issue a valuation report, hire a broker, provide

bidding procedures, or allow for competitive bidding. Despite declarations

stating that there was no prior relationship between GPMI and Envoy,

Albaad also posited that an undisclosed arrangement must have existed

between GPMI and Envoy, otherwise, Albaad questioned, “how [did]

Envoy become the cherry-picked buyer[?]”

GPMI disputed Albaad’s allegations. GPMI argued that Albaad’s

assertions were both without merit and belied by the overwhelming

evidence provided through the Plan confirmation process, such as the

disclosure documents, declarations, and witness testimony. According to 11 GPMI, Albaad’s meritless claims were simply an attempt to derail the

confirmation process in an effort to forestall the continuation of GPMI’s

lawsuit against Albaad.

GPMI presented evidence that its marketing process was extensive

and thorough and began before GPMI filed for chapter 11 relief. GPMI

presented declarations from Bendor, MCA, and the Committee describing

GPMI’s thorough and persistent marketing efforts to find an investor or

buyer for GPMI. Additionally, a representative of MCA specifically

disputed Albaad’s allegations that GPMI’s failure to hire a separate broker

demonstrated deficient marketing. Based on MCA’s substantial chapter 11

experience, the representative testified that the job of marketing a debtor

for sale had always been performed by an experienced financial advisor,

and the representative was unaware “of any instance in which a broker had

also been retained.” Additionally, because the Plan did not preclude

competitive bidding and allowed for the possibility of a topping bid, there

was no need for a formal valuation of GPMI. A representative of the

Committee also testified that the Committee was very involved, “knew

what was going on,” and had “absolute confidence in the marketing

process.”

GPMI also argued that Albaad had provided no evidence beyond

unsupported supposition that GPMI chose Envoy as the buyer because of a

personal benefit to Bendor or because Bendor somehow manipulated the

12 plan confirmation process to benefit himself. GPMI argued the evidence

demonstrated the contrary for several reasons.

First, GPMI presented evidence15 demonstrating that the Reorganized

Debtor’s decision to hire Bendor in a managerial role after Plan

confirmation was based on Bendor’s expertise, experience in the field, his

years of successfully managing GPMI, and his intimate knowledge of

GPMI’s business and was not based on Bendor’s manipulation of the

process to benefit himself. Second, GPMI presented evidence

demonstrating that Bendor’s employment was not a condition of Envoy’s

agreement to purchase the equity interests in GPMI. Rather, Bendor’s

employment agreement was a completely separate negotiation that was not

finalized until after the Plan was filed. Third, GPMI presented evidence

that pursuant to the terms of the Plan and Bendor’s proposed employment

contract, Bendor would be hired by the Reorganized Debtor as an at-will

employee who would have no interest, ownership interest, or stock options

with regard to, or because of, his employment with the Reorganized

Debtor.

2. Alleged violation of § 1129(a)(5)

At the hearing, Albaad also objected to the Plan on the grounds that

the Plan violated § 1129(a)(5) because Bendor’s role as the Trustee of the

Litigation Trust was contrary to the best interest of the creditors. Albaad

15 Evidence included declarations, live testimony, documents, and copies of relevant communications. 13 asserted that because Bendor would be a material witness in the Trust’s

litigation, Bendor’s interest was adverse to Albaad, and thus Bendor could

not be a neutral trustee as required by § 1129(a)(5).

The bankruptcy court acknowledged Bendor’s potential conflict of

interest but questioned Albaad’s premise given no other creditors nor the

U.S. Trustee had objected to Bendor’s appointment.

GPMI disputed Albaad’s claims, arguing that Bendor’s appointment

as Trustee was in the best interest of creditors and that GPMI and the

Committee specifically selected Bendor only after careful consideration.

Because the Litigation Trust’s assets consisted primarily of claims against

Albaad and Michelin, GPMI argued that Bendor was ideally suited to serve

as Trustee in light of his personal experience, knowledge of GPMI, and

knowledge of the factual basis of the litigation claims.

Additionally, GPMI presented evidence that Bendor’s role would be

subject to significant control by a “Trust Oversight Committee” with “very

sophisticated participants.” Pursuant to the terms of the Litigation Trust,

the Trustee would have an ongoing obligation to keep the Oversight

Committee informed of the continuing efforts on behalf of the Litigation

Trust to collect, liquidate, and distribute any Trust assets.

G. Confirmation order

At the close of the evidentiary hearing, the bankruptcy court

confirmed the Plan with minor changes agreed to by the parties at the

14 hearing.16 The bankruptcy court entered GPMI’s proposed order approving

the disclosure statement and confirming the Plan.

Albaad timely appealed. Albaad also filed an emergency motion for a

stay pending appeal with both the bankruptcy court and the BAP. Both

motions were denied.

JURISDICTION

The bankruptcy court had jurisdiction under

and

157(b)(2)(L). We have jurisdiction under

.

ISSUES

Did the bankruptcy court abuse its discretion when it confirmed the

Plan?

Did the bankruptcy court commit clear error when it found that the

Plan did not violate the absolute priority rule?

Did the bankruptcy court commit clear error when it found that the

Plan complied with the applicable requirements of § 1129(a)(5)?

STANDARDS OF REVIEW

We review the bankruptcy court's decision to confirm a chapter 11

plan for an abuse of discretion. Marshall v. Marshall (In re Marshall),

(9th Cir. 2013) (citation omitted). Abuse of discretion occurs

when a court applies the wrong legal standard, misapplies the correct legal

Albaad’s only objection to the proposed form of the confirmation order was to 16

paragraph 76, Reversal or Modification. Albaad was concerned the provision would be interpreted to moot any appeal. The bankruptcy court disagreed, finding that the clause would not adversely impact any appeal of Plan confirmation. 15 standard, or makes factual findings that are illogical, implausible, or

without support in the record. United States v. Hinkson,

, 1261-

62 (9th Cir. 2009) (en banc). Factual findings regarding whether a plan

satisfies the confirmation requirements are reviewed for clear error. See

Comput. Task Grp., Inc. v. Brotby (In re Brotby),

(9th Cir.

BAP 2003). Clear error exists when the reviewing court has a definite and

firm conviction that a mistake has been made.

DISCUSSION

Confirmation of a proposed chapter 11 reorganization plan is

governed by § 1129.

A. The Plan complies with § 1129(b)

1. The absolute priority rule

If the plan is not consensual, meaning that if § 1129(a)(8) is not

satisfied (and there is no unanimous acceptance of the plan by all the

impaired classes), the plan may still be confirmed if the court finds that

“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.” § 1129(b)(1); see also Liberty Nat'l Enters. v. Ambanc

La Mesa Ltd. P'ship (In re Ambanc La Mesa Ltd. P'ship),

, 653-54.

(9th Cir. 1997).

For a plan to be fair and equitable as to impaired unsecured claims, it

must, at a minimum, comply with the absolute priority rule, which

requires that a dissenting class of unsecured creditors is provided for in full 16 before any junior class (including old equity holders) receives or retains

any property under the plan on account of their junior claim or interest.

§ 1129(b)(2)(B); Norwest Bank Worthington v. Ahlers,

(1988).

The rule was a response to “concern . . . [regarding] the ability of a few

insiders, whether representatives of management or major creditors, to use

the reorganization process to gain an unfair advantage.” LaSalle,

(cleaned up).

Importantly, § 1129(b)(2)(B)(ii) only prohibits junior equity from

receiving or retaining property “on account of” an interest that is junior to

other unsecured creditor claims. Consequently, § 1129(b)(2)(B)(ii) is not

implicated when old equity “receive[s] or retain[s]” property “under the

plan [not] on account of [a] junior claim or interest.” § 1129(b)(2)(B)(ii)

(emphasis added); see Bonner Mall P'ship v. U.S. Bancorp Mort. Co. (In re

Bonner Mall P'ship),

(9th Cir. 1993), dismissed on other

grounds,

(1994).

2. New value corollary to the absolute priority rule

An exception or corollary to the absolute priority rule in

§ 1129(b)(2)(B)(ii) allows old equity to retain an interest in the reorganized

debtor notwithstanding the objection of an unsecured class that is not paid

in full, if they give “value” to the reorganized debtor that is: (1) new; (2)

substantial; (3) money or money's worth; (4) necessary for a successful

reorganization; and (5) reasonably equivalent to the value or interest

received. In re Bonner Mall P'ship,

. Under the “new value

17 exception” when old equity makes a new, substantial, necessary and fair

infusion of capital it may retain its interest notwithstanding the absolute

priority rule. LaSalle,

.

3. Albaad either misunderstands or misapplies the holding of LaSalle

Before the bankruptcy court, and again on appeal, Albaad asserts that

the Plan violates the absolute priority rule because the Plan was proposed

during the exclusivity period and Bendor used his position as an old equity

holder to select a buyer and craft terms of the Plan that were personally

beneficial to him. Albaad’s argument relies heavily on its interpretation of

the holding in LaSalle, i.e. that LaSalle required “market testing of [Envoy’s]

offer,” but GPMI’s “going-concern was not market-tested.” Therefore,

according to Albaad, the Plan violates the absolute priority rule.

Albaad either misunderstands or misapplies the holding of LaSalle

and contrary to Albaad’s assertions, the Plan does not violate the absolute

priority rule.

First, unlike the facts in this case, the court in LaSalle was concerned

about a plan that allowed old equity the exclusive opportunity to retain

ownership in a reorganized debtor. In LaSalle, it was the “exclusiveness of

the opportunity, with its protection against the market's scrutiny of the

purchase price by means of competing bids or even competing plan

proposals,” that rendered the opportunity “on account of” the old equity

18 position and therefore a violation of the absolute priority rule. LaSalle,

.

The Supreme Court in LaSalle explained that there was no way for the

bankruptcy court to “test the adequacy [and fairness] of an old equity

holder's proposed contribution,” and whether it satisfied the new value

corollary, when the debtor could not provide the bankruptcy court with

any information as to what “someone else would have paid.” LaSalle,

. This is because in LaSalle there was no market testing of the

offer made in the plan of reorganization because the old equity holders

were the only party given the exclusive right to invest in the reorganized

debtor.

.

In this case, the new value corollary is not applicable because Albaad

offered no evidence that the Plan provided Bendor “exclusive

opportunities free from competition” to acquire an interest in the

Reorganized Debtor “on account of” his old equity position. Rather, under

the Plan, all existing equity was cancelled without compensation.

Albaad’s attempts to liken Bendor’s post-confirmation employment

to LaSalle’s old equity holders’ exclusive opportunity to obtain an equity

interest in the Reorganized Debtor are without merit. Albaad provides no

evidence that Bendor’s post-confirmation employment with the

Reorganized Debtor is an equity interest that Bendor is receiving under the

Plan or that his employment is “on account of” his former equity

ownership in GPMI. Rather, the record demonstrates that Bendor, along

19 with all other old equity lost all equity interest in GPMI upon the

confirmation of the Plan. Additionally, the plain language of Bendor’s

employment agreement states that he is an at-will employee and that he

will not receive any equity interest in the Reorganized Debtor.

Second, although GPMI proposed the Plan during the exclusivity

period, there are no facts demonstrating that Bendor purposely used the

exclusivity period to craft and propose a personally beneficial plan as

happened in LaSalle. Similarly, there are no facts demonstrating that

Bendor used the exclusivity period to game the system and propose a plan

that was “too good a deal” for Bendor. LaSalle,

. Albaad

provided no evidence to support its argument that Envoy was a “cherry

picked buyer.”

To the contrary, the bankruptcy court found that GPMI and its

principals (including Bendor) “had no preexisting relationship” with

Envoy and the “Plan was negotiated as an arms-length transaction subject

to the scrutiny of, among others, the Committee, the U.S. Trustee and the

Court.” Albaad has not met its appellate burden of demonstrating the

findings are clear error.

Although Bendor’s post-confirmation employment with the

Reorganized Debtor is undoubtedly a benefit for Bendor, the evidence

demonstrated that Envoy hired Bendor because of Bendor’s experience and

expertise, not because of his old equity interest in GPMI. Furthermore, the

bankruptcy court found that the employment agreement was negotiated

20 independent of the terms of the Plan and that Envoy’s agreement to

purchase GPMI was not dependent on Bendor’s employment with the

Reorgainzed Debtor.

Third, contrary to Albaad’s assertions, the holding in LaSalle did not

require certain valuation or marketing methods of GPMI’s going concern.

LaSalle merely stated that “the best way to determine value [and test the

adequacy of an old equity holder's proposed contribution] is exposure to a

market.” LaSalle,

(citations omitted). However, LaSalle

specifically stated it was not deciding what a debtor must do to “market

test” the interest17 although it identified some alternatives, such as the right

to bid for the same interest or the right to file a competing plan.

.

Thus, even if LaSalle and the new value corollary applied, GPMI was

not obligated to hire a broker to sell the business or provide a professional

valuation as asserted by Albaad. Rather, GPMI’s marketing efforts satisfied

the market testing requirement.

A review of the record demonstrates that the bankruptcy court did

not clearly err in finding that GPMI engaged in significant, active efforts to

market GPMI to both investors and buyers. The evidence established that

GPMI marketed its business for over a year, with the assistance of a

respected business advisor targeting over 30 qualified parties, including

17 The LaSalle Court noted that “[w]hether a market test would require an opportunity to offer competing plans or would be satisfied by a right to bid for the same interest sought by old equity is a question we do not decide here.” LaSalle,

(emphasis added). 21 Albaad. Negotiations progressed with several prospective buyers to the

point of exchanging due diligence materials. However, with the exclusion

of Envoy, all prospective financial buyers eventually declined to pursue an

acquisition. Thus, unlike LaSalle, there was sufficient evidence for the

bankruptcy court to find that the price paid by Envoy was the “greatest

possible addition to the bankruptcy estate, . . . [and not] less than someone

else would have paid.”

.

The bankruptcy court also did not err in rejecting Albaad’s assertions

that the alleged accelerated timeline for confirmation somehow evidenced

a lack of marketing by GPMI. The bankruptcy court found that GPMI was

in dire financial need and without the accelerated timeline, GPMI would

not have been able to continue to make payroll or rent payments which

would have resulted in liquidation rather than reorganization continuation

as a going concern.

Based on the foregoing, the absolute priority rule is not implicated,

and the bankruptcy court did not commit clear error in finding that the

Plan complies with § 1129(b).

B. The Plan complies with § 1129(a)(5)

A chapter 11 plan may not be confirmed if the continuation in

management of the persons proposed to serve as officers or managers of

debtor is not in the interests of creditors and public policy.

§ 1129(a)(5)(A)(ii). Continued service by prior management may be

inconsistent with the interests of creditors and public policy if it directly or 22 indirectly perpetuates incompetence, lack of discretion, inexperience or

affiliations with groups inimical to the best interests of the debtor. Linda

Vista Cinemas, L.L.C. v. Bank of Ariz. (In re Linda Vista Cinemas, L.L.C.),

(Bankr. D. Ariz. 2010) (citing In re Beyond.com Corp.,

(Bankr. N.D. Cal. 2003)).

Albaad argues that the bankruptcy court erred in confirming the Plan

because the Plan violates § 1129(a)(5) by allowing Bendor to serve as “post

confirmation management of the Litigation Trust [which] is not consistent

with the interest of creditors or public policy.” Because Bendor is an

interested party and a material witness in the potential litigation (asset of

the Litigation Trust), Albaad asserts that he should not serve as Trustee

because a “trustee should have some sense of independence to fairly

manage the trust and disburse assets in a fair manner.” Albaad further

asserts that the Trust Oversight Committee is not sufficient protection

because Bendor retains too much discretion and “has unbridled discretion

to choose when to pay out a creditor’s claim, if at all.”

Albaad’s assertions are without merit. Although Albaad is correct in

its assessment that Bendor is not disinterested, Albaad has not

demonstrated that this causes Bendor’s appointment as Trustee to be

inconsistent with the interest of creditors or public policy in violation of

§ 1129(a)(5).

First, Albaad’s assertions that because Bendor has an interest adverse

to Albaad in the Albaad Litigation, he would not treat Albaad fairly and

23 would “essentially ensure that Albaad will never receive a pay-out even if

its claims are successful” are mere supposition and belied by the plain

language of the terms of the Litigation Trust. According to the terms of the

Litigation Trust, Bendor must distribute proceeds from the Litigation Trust

to creditors with allowed claims in accordance with the priorities of § 507

and the classification of claims set forth in the Plan. Thus, Bendor has the

duty to distribute litigation proceeds on a pro rata basis pursuant to

applicable law and the priority of the claims.

Second, Bendor’s compensation as Trustee does not cause his

appointment as Trustee to be contrary to the interest of creditors or public

policy as argued by Albaad. The bankruptcy court found that the terms of

the Litigation Trust were “negotiated at arms-length” between GPMI and

the Committee and that the Committee was very involved in the process of

drafting the terms of the Litigation Trust. Although Bendor will receive

compensation for serving as Trustee, he does not receive compensation

until creditors receive at least 25% of their allowable claims. After that,

Bendor’s compensation increases as a percentage of the amount paid to

creditors. Thus, Bendor’s interest aligns with the unsecured creditors.

Bendor receives more compensation only if the unsecured creditors receive

more on their allowed claims.

Finally, Bendor’s appointment as Trustee is not contrary to the

interest of creditors as is evidenced by the wide support of other unsecured

creditors who, through the Committee, had substantial input in the final

24 version of the Litigation Trust. Indeed, all impaired, unsecured creditors

except Albaad supported the Plan and Bendor’s appointment as Trustee. A

Committee member testified that the terms of the Litigation Trust as

presented in the Plan were “decidedly different” than in the first proposal

because of the Committee’s edits. “There was a complete redline and

rewrite that was undertaken.” The Committee reviewed various provisions

that they had concerns about, “making sure that there was an oversight

board that actually controls,” not simply consults.

Based on the record, the bankruptcy court did not clearly err in

finding that the terms of the Litigation Trust “including, but not limited to,

the management and compensation provisions contained therein are in the

best interests of all stakeholders and reasonable and appropriate under the

circumstances” and that the Plan complied with § 1129(a)(5).

C. Equitable Mootness

Equitable mootness is “a judge-made abstention doctrine unrelated to

the constitutional prohibition against hearing moot appeals.” Rev Op Grp. v.

ML Manager LLC (In re Mortgs. Ltd.),

(9th Cir. 2014). The

doctrine holds that even where effective relief is theoretically possible, and

the appeal is therefore not constitutionally moot, courts may “dismiss

appeals of bankruptcy matters when there has been a ‘comprehensive

change of circumstances . . . so as to render it inequitable for [the] court to

consider the merits of the appeal.’”

(quoting Motor Vehicle Cas. Co. v.

Thorpe Insulation Co. (In re Thorpe Insulation Co.),

(9th Cir.

25 2012). The “party moving for dismissal on mootness grounds bears a heavy

burden.” In re Thorpe Insulation Co.,

(citation omitted).

Substantial consummation does not, by itself, render an appeal moot. In re

Mortgs. Ltd.,

.

Appellees argue that this appeal is equitably moot. The Panel has

judicial discretion to determine the merits of this case despite claims of

equitable mootness. Because we are ruling on the merits, the Panel need

not render a ruling on the appellee’s claim of equitable mootness. See e.g.

Co Petro Mktg. Grp., Inc., v. Commodity Futures Trading Comm’n (In re Co

Petro Mktg. Grp., Inc.),

, 569 n.1 (9th Cir. 1982).

CONCLUSION

Because the bankruptcy court did not clearly err in finding that the

Plan satisfied the confirmation requirements, the bankruptcy court did not

abuse its discretion in confirming the Plan. We AFFIRM.

26