Rough Justice: Third Circuit Issues Important Decision On Unfair Discrimination

"Unfair discrimination is rough justice. It exemplifies the Code's tendency to replace stringent requirements with more flexible tests that increase the likelihood that a plan can be negotiated and confirmed," announced Judge Thomas Ambro of the United States Court of Appeals for the Third Circuit on August 26, 2020.¹ Though limited to an explication of Section 1129(b)(1)'s prohibition on unfair discrimination against a class of dissenting creditors, Judge Ambro's "rough justice" remark will echo in all areas of bankruptcy law among practitioners who prioritize pragmatism over perfectionism.

In its latest Tribune decision, the Third Circuit considered an appeal from a group of bondholders who alleged that a plan that fails to strictly enforce subordination agreements among creditors in accordance with Section 510(a) of the Bankruptcy Code is ineligible for confirmation under Section 1129(b)(1) of the Bankruptcy Code.  In the alternative, they argued that