Dale C. Eckert Corp. v. Orange Tree Associates, Ltd. (In re Orange Tree Associates, Ltd.)

I

Orange Tree Associates is a limited partnership formed to develop a 100-unit condominium complex in Long Beach, California. Before the condominium project was completed, Orange Tree filed a petition for *1446 Chapter 11 bankruptcy in the Los Angeles bankruptcy court.

Orange Tree’s principal creditors were the bank that financed the project, whose successor in interest is appellee New West Federal Savings and Loan, and appellant Dale C. Eckert Corporation, the general contractor. 1 New West had first claim to the condominium project under a deed of trust. Eckert held a $765,763 mechanics lien for construction work. The amount due New West under its deed of trust far exceeded the market value of the project, making Eckert’s claim virtually worthless. Further, Orange Tree disputed Eckert’s $765,763 claim against the Orange Tree estate. Eckert filed a Chapter 7 petition in the San Bernardino bankruptcy court.

The Eckert trustee agreed to exchange Eckert’s disputed, secured claim of $765,-763 for an undisputed, unsecured claim of $75,000. Orange Tree had proposed a reorganization plan under which unsecured creditors would be paid slightly more than 10 cents on the dollar. If the…