In Re James E. Johnston, Dba Johnston Enterprises, Debtor. Steelcase Inc. v. James E. Johnston and Unsecured Creditors' Committee

We are called upon in this ease to decide: (1) the proper standard for determining when an unsecured claim may be classified separately from other unsecured claims under 11 U.S.C. § 1122 (a) ; and (2) whether the absolute priority rule, codified at 11 U.S.C. § 1129 (b)(2)(B), is violated whenever a debtor retains assets of the bankrupt estate before actual payment is made in full to all senior unsecured creditors.

The bankruptcy appellate panel (BAP) and the bankruptcy court determined that the claims of the appellant, Steelcase Inc., were properly classified in the plan of reorganization filed by the debtor, appellee James E. Johnston, and that Johnston’s plan of reorganization does not violate the absolute priority rule.

Although the BAP failed to apply either the proper standard of review in assessing the bankruptcy court’s approval of the plan’s classification of claims, and read Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 202 , 108 S.Ct. 963, 966 , 99 L.Ed.2d 169 (1988) differently than we do in interpreting requirements of the absolute priority rule, we nevertheless agree with its ultimate conclusion. We, therefore, will affirm the June 1, 1992 judgment of…