In re: CHROME HOLDING CO. (f/k/a 23ANDME HOLDING CO.), et al.

               UNITED STATES BANKRUPTCY COURT                            
                 EASTERN DISTRICT OF MISSOURI                            
                       EASTERN DIVISION                                  

In re:                            Case No. 25-40976-357                  
CHROME HOLDING CO. (f/k/a         Chapter 11                             
23ANDME HOLDING CO.), et al.,     Jointly Administered                   
              Debtors.                                                   

                    MEMORANDUM OPINION                                   
    Debtor ChromeCo, Inc., formerly known as 23andMe, Inc., sold its assets under 
Section 363 of the Bankruptcy Code earlier in this case. It then rejected its lease of a building 
in San Francisco owned by KR OP Tech, LLC (the “Landlord”). The Landlord filed a proof 
of claim for rejection damages of approximately $9.7 million.             
    The Landlord has now objected to the Fourth Amended Joint Plan of Chrome Holding 
Co. and its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code (the “Plan”). Its 
objections raise several issues, but all derive from a single fact: if Section 502(b)(6) of the 
Bankruptcy Code applies here, the Landlord’s allowed claim in this case will be limited to 
about $5.6 million.1                                                      
    For  the  reasons  discussed  below,  I  will  overrule  the  Landlord’s  objections  to 
confirmation of the Plan, but I will include language in the confirmation order protecting the 
Landlord’s rights against what may remain of the Debtor after confirmation. 
I.   Jurisdiction                                                         
    The  Court  has  subject-matter  jurisdiction  of  the  Debtor’s  case  and  the  plan-
confirmation proceedings under 

28 U.S.C. § 1334

(a)-(b). This is a core proceeding under 

28 U.S.C. § 157

(b)(2)(L).                                                    

    1 The Debtor has not agreed to either of these calculations, but it has not disputed them 
for purposes of the legal issues raised by the Landlord. I will take the same approach. 
II.  Background                                                           
    A.   The Debtors’ Business and History                               
    Before filing for bankruptcy relief, the Debtors in these cases operated a direct-to-
consumer genetic-testing business.2 Customers could send the company saliva samples in 
exchange for extensive information about their personal genomes, including ancestry and 
susceptibility to certain illnesses. In operating this business, the Debtors stored highly sensitive 
personal information, including saliva samples, DNA testing results, and other customer 
information such as names and email addresses.                            
    In 2023, the company announced that it had suffered a data breach, during which 
hackers accessed the personal data of approximately seven million customers. Extensive 
litigation and threats of legal action ensued after the data breach. The fallout from the data 
breach strained the Debtors’ resources and, along with other economic factors, led the 
Debtors to file for Chapter 11 relief.                                    
    In March 2025, the Debtors filed a motion to establish bidding procedures and to set 
certain deadlines for the sale of their assets, and I granted that motion. A lengthy sale process 
followed, culminating in a two-day evidentiary hearing on the Debtors’ motion to sell 
substantially all of their assets, except the Lemonaid telehealth business, for a purchase price 
of $302.5 million. I entered an order approving the sale on June 27, 2025, and the sale closed 
on July 14, 2025. See In re 23andMe Holding Co., --- B.R. ----, 

2025 WL 1791166

 (Bankr. E.D. 
Mo. June 27, 2025).                                                       
    The Debtors filed their original Chapter 11 plan and disclosure statement on August 
15, 2025. I entered an order approving the adequacy of the disclosure statement and the 
confirmation  procedures  on  October  1,  2025.  The  Debtors  have  since  filed  various 
supplements and amended plans, with the most recent being the Plan.       
    On September 11, 2025, the Debtors filed a Notice of Lemonaid Stock Purchase 
Agreement, which indicated an intent to consummate the sale of the Lemonaid telehealth 
business through the Plan. Pursuant to this agreement, Bambumeta Ventures, LLC will 
acquire 100% of the outstanding capital stock of Debtors Lemonaid Health, Inc. and Chrome 
Pharmacy  Holdings,  and  thus  obtain  indirect  ownership  of  several  other  subsidiaries 
(collectively, the “Lemonaid Debtors”) for $10 million. No party objected to the related plan 

    2 Although the dispute with the Landlord involves only Debtor ChromeCo, Inc., I 
discuss that company and its affiliated debtors collectively in this background section. 
provisions. With the sale of the Lemonaid Debtors, the Debtors will no longer have any 
business operations.                                                      
    B.   Key Terms of the Plan                                           
    Classes 3, 4, 5, and 14 under the Plan address three class actions that have been 
preliminarily certified for settlement purposes, as well as a large group of claimants with 
pending arbitration claims. Claimants who opt out of the class actions or do not participate 
in the arbitration settlement will join other general unsecured creditors of the genomics 
business in Class 7 or general unsecured creditors of the Lemonaid business in Class 9. 
Creditors in these classes will receive pro rata distributions from a liquidating trust known as 
the Plan Administration Trust. If the trust has sufficient assets, allowed claims of general 
unsecured creditors will be paid in full.                                 
    Classes  6  and  8  include  commercial  creditors  of  the  genomics  and  Lemonaid 
businesses,  respectively.  These  creditors  also  will  be  paid  pro  rata  from  the  Plan 
Administration Trust. If sufficient assets are available in the trust, they will have their allowed 
claims paid in full and will receive post-petition interest.              
    Class 12 consists of holders of stock in the Debtors’ publicly traded parent company. 
If there are funds remaining in the trust after all allowed claims are paid in full, the equity 
holders will receive a pro rata share of the remaining proceeds.          
    The liquidation analysis attached to the disclosure statement suggests that the Debtors 
are solvent and that there may be a substantial distribution to equity holders.  As the Debtors 
noted at the confirmation hearing, however, it is too soon to know whether the Debtors are 
solvent. Creditors have filed proofs of claim with an aggregate face value in the trillions of 
dollars against the Debtors, but they have only approximately $200 million to distribute. 
Whether and to what extent equity holders will receive a distribution will be uncertain until 
the Debtors complete the claims reconciliation process.                   
    All eligible classes voted to accept the plan except for Classes 6, 7, and 12.  
    As discussed previously, the Debtors will sell the stock of the Lemonaid Debtors 
through the Plan. The Debtors intend to close that sale on the effective date of the Plan. The 
Debtors intend to wind-down their remaining entities (the “Wind-Down Debtors”). The 
Wind-Down Debtors will not “engage in business after consummation of the plan” and 
therefore  are  ineligible  to  receive  discharges.  

11 U.S.C. § 1141

(d)(3)(B).  The  Lemonaid 
Debtors, however, will receive discharges.                                
III.  Analysis                                                            
    The Landlord objects to confirmation of the Plan on three principal grounds. First, it 
argues that Section 502(b)(6) should not operate to cap a landlord’s claim for rejection 
damages if the debtor is solvent.3 Second, the Landlord argues that the Plan violates the best-
interests-of-creditors test of 

11 U.S.C. § 1129

(a)(7) because the Landlord would recover more 
in a hypothetical Chapter 7 liquidation than it will under the Plan. And third, the Landlord 
argues that the Plan indirectly discharges its debt even though the Debtor is not eligible for a 
discharge.                                                                
    I will address each of these arguments, along with two related ones, in turn. 
    A.   Section 502(b)(6) and Solvent Debtors                           
    Courts have been nearly unanimous in their rejection of the Landlord’s argument that 
Section 502(b)(6) does not apply to a solvent debtor. See, e.g., In re Federated Department Stores, 
Inc., 

131 B.R. 808, 817

 (S.D. Ohio 1991) (“There is simply nothing in the plain language of 
§ 502(b)(6) to suggest that a bankruptcy court may depart from the application of the cap on 
a lessor’s claim any time the debtor is solvent or the court otherwise believes the equities of 
the case might warrant such a departure.”); 1500 Mineral Spring Associates, LP v. Gencarelli, 

353 B.R. 771, 785

  (D.R.I.  2006)  (discussing  “overwhelming  weight  of  authority”  favoring 
debtors); In re Farley, Inc., 

146 B.R. 739, 748

 (Bankr. N.D. Ill. 1992) (“[T]he solvency question 
is not a material issue of fact which would have any effect on determination of the statutory 
cap under § 502(b)(6).”); In re PPI Enterprises (U.S.), Inc., 

228 B.R. 339, 346

 (Bankr. D. Del. 
1998) (“The Code allows for no such distinction between value for creditors involving the 
application  of  § 502(b)(6)  and  value  for  equity  holders  excluding  the  application  of 
§ 502(b)(6).”), aff’d, 

324 F.3d 197

 (3d Cir. 2003).4                      

    3 Section 502(b)(6) provides that “the claim of a lessor for damages resulting from the 
termination of a lease of real property” is disallowed to the extent that it exceeds “the rent 
reserved by such lease, without acceleration, for the greater of one year, or 15 percent, not to 
exceed three years, of the remaining term of such lease,” plus accrued unpaid rent. 

11 U.S.C. § 502

(b)(6).                                                              
    4 The Landlord argues that the debtor in PPI was not solvent. That is arguably correct, 
because the plan in that case included a large class of insider claims that would not be paid in 
full. See 324 F.3d at 201 n.6. But the landlord in PPI presented his argument that the cap 
should not apply on the premise that the debtor was solvent, and the bankruptcy court rejected 
that argument. See 

228 B.R. at 346

. As discussed above, it is not clear whether the Debtor in 
                                                    (footnote continued) 
    In the leading case to the contrary, the court relied on equitable principles because it 
concluded that Section 502(b)(6) did not clearly include or exclude a landlord’s claim against 
a debtor-guarantor, as opposed to a debtor-tenant. See In re Danrik, Ltd., 

92 B.R. 964, 967

 
(Bankr. N.D. Ga. 1988). Many courts have disagreed with this initial premise of Danrik, 
concluding that the plain language of the statute covers guarantors as well. See, e.g., In re Interco 
Inc., 

137 B.R. 1003, 1006

 (Bankr. E.D. Mo. 1992) (§ 502(b)(6) “is applicable whether the 
debtor is the tenant or the guarantor”); In re Arden, 

176 F.3d 1226

, 1229 (9th Cir. 1999) 
(criticizing bankruptcy court for relying on Danrik in case of solvent debtor-guarantor). See 
also In re Wigley, 

951 F.3d 967, 971

 (8th Cir. 2020) (cap applies to landlord’s claim against 
debtor that received fraudulent transfer). And there is no ambiguity in this case; the Debtor 
was a tenant, not a guarantor. Because Congress has clearly specified that the Section 
502(b)(6) cap applies in the situation before me, I cannot deploy equitable principles to reach 
the opposite conclusion. See, e.g., United States v. Noland, 

517 U.S. 535, 543

 (1996) (bankruptcy 
court cannot make equitable “categorical determination” about priority of claims). 
    But even if I had a completely free hand in the matter, I would not adopt the 
Landlord’s preferred construction of Section 502(b)(6). The statute has its roots in a 1934 
amendment to the Bankruptcy Act of 1898. See Act of June 7, 1934, ch. 424, § 1, 

48 Stat. 911

, 
915 (enacting § 77B(b) of Bankruptcy Act). The Second Circuit described the provisions of 
this legislation relating to landlords as “an obvious compromise . . .  reached only after serious 
research and study on the part of the legislators.” Oldden v. Tonto Realty Corp., 

143 F.2d 916, 920

 (2d Cir. 1944). See also S. Rep. No. 95-989, at 63-64 (1978), reprinted in 1978 U.S.C.C.A.N. 
5787, 5849-50 (citing Oldden and describing compromises in similar 1978 legislation); Kuehner 
v. Irving Trust Co., 

299 U.S. 445, 453

 (1937) (describing “the diverse views entertained in 
Congress as to the amount for which a claim should be allowed”). The amendment provided 
a limited remedy to landlords, whose claims for rejection damages had not previously been 
considered provable. See City Bank Farmers Trust Co. v. Irving Trust Co., 

299 U.S. 433, 437

 
(1937). And it was promptly challenged, on both statutory and constitutional grounds, as it 
applied  to  solvent  debtors  and  their  shareholders.  The  Second  Circuit  rejected  such  a 
challenge in Kuhner v. Irving Trust Co., 

85 F.2d 35

 (2d Cir. 1936), aff’d sub nom. Kuehner v. Irving 
Trust Co., 

299 U.S. 445

 (1937). Judge Learned Hand explained:             
    The appraisal of realty at a distant time is the merest guess; nobody can possibly 
    know anything about it, and one man’s guess is nearly as good as another’s. 
    For this reason Congress might circumscribe its use to the near future, not only 

this case is solvent, but that does not preclude the Landlord from raising objections to 
confirmation because of how the Plan would work should the Debtor turn out to be solvent. 
    as against creditors, but against the lessee itself. That would be no more drastic 
    or unfair than the common law had been again and again.              
Kuhner, 

85 F.2d at 38

. The Supreme Court agreed that the statute disallowed claims in excess 
of the limit that it set forth; it did not merely subordinate the excess for payment before 
distributions to shareholders. See Kuehner, 

299 U.S. at 449-50

. It rejected the constitutional 
challenge as well:                                                        
    Whatever courts, in the absence of a statutory formula, might feel compelled 
    to adopt as the measure of damage in such a case, we cannot hold that Congress 
    could not reasonably find that an award of the full difference between rental 
    value and rent reserved for the remainder of the term smacks too much of 
    speculation and that a uniform limit upon landlords’ claims will, in the long 
    run, be fairer to them, to other creditors, and to the debtor.       

Id. at 454

.                                                               
    The  Landlord  points  out  that  an  important  consequence  of  the  1934  legislation 
allowing landlords’ claims for rejection damages was that debtors could, for the first time, 
discharge those debts. See 

id. at 453

 (“Congress obviously attempted to award landlords an 
equitable share in the debtor’s assets . . . since the purpose was to discharge the debtor from 
liability to future suits based upon the lease.”). Although that is correct, nothing in the statute 
or the Kuehner opinion limits the application of the cap to situations in which the debtor 
receives a discharge of its debts generally or of the landlord’s claim in particular. The statute 
and the case concern “the creditor’s remedy for [contract] enforcement against the debtor’s 
assets, or the measure of the creditor’s participation therein,” not what might happen after the 
assets have been distributed, or if the debtor is reconstituted as a going concern, or when the 
landlord pursues a non-debtor. 

Id. at 452

. See also In re Wigley, 

15 F.4th 1208, 1212

 (8th Cir. 
2021) (§ 502(b)(6) “established the amount allowed to be paid from the bankruptcy estate,” 
as distinguished from what creditor might recover if debt were excepted from discharge). 
    The  Landlord  also  argues  that  two  changes  in  the  law  in  1978  render  Kuehner 
inapplicable today. The first is that liquidating corporations were eligible to receive discharges 
under the Bankruptcy Act of 1898 but are not under the Bankruptcy Code. See 

11 U.S.C. § 1141

(d)(3). And the second is that the 1934 statute stated that a landlord’s claim “shall be 
limited,” while Section 502(b)(6) says that a landlord’s claim is allowed “except to the extent 
that” it “exceeds” the cap. Compare 48 Stat. at 915 with 

11 U.S.C. § 502

(b)(6). I do not agree 
that either of these changes is meaningful. As just discussed, the statute, and its interpretation 
in Kuehner, concern what happens during the distribution of the debtor’s assets among 
creditors and shareholders, not what may happen afterwards. And the distinction between 
limiting a claim and disallowing the portion of a claim above a threshold is not material.5 
    Against this historical backdrop, there is no room for me to decide that it would be 
preferable for the Landlord to recover in full before shareholders may receive distributions. 
Congress has made its decision—in 1934 and again in 1978—about what a landlord may 
recover in the bankruptcy case of its tenant, and the Supreme Court has determined that 
Congress may do so, even if the tenant is solvent.6                       
    The Landlord also relies on 21st-century cases interpreting a different disallowance 
statute, Section 502(b)(2) of the Bankruptcy Code. That subsection generally disallows claims 
for unmatured interest, but under what is known as the “solvent-debtor exception,” a debtor 
must nevertheless pay interest to creditors before making distributions to shareholders. See, 
e.g., In re Ultra Petroleum Corp., 

51 F.4th 138, 150

 (5th Cir. 2022); In re PG&E Corp., 

46 F.4th 1047

, 1057 (9th Cir. 2022). But these cases depend significantly on the longstanding, pre-Code 
practice of requiring solvent debtors to pay interest. See Ultra, 

51 F.4th at 150

 (noting that the 
solvent-debtor exception has existed for “some three centuries of bankruptcy law”); PG&E, 
46 F.4th at 1059 (noting that “the equitable solvent-debtor exception was widely applied”); 
American Iron & Steel Manufacturing Co. v. Seaboard Air Line Ry., 

233 U.S. 261, 267

 (1914) 
(discussing exception); United States v. Kalishman, 

346 F.2d 514, 518

 (8th Cir. 1965) (same). 
See also 

11 U.S.C. § 726

(a)(5) (requiring Chapter 7 trustee to pay interest if all allowed claims 
have been paid).                                                          
    The Landlord’s claim to compensation above the Section 502(b)(6) cap has no such 
pedigree. As discussed above, before 1934, landlords could not recover rejection damages at 
all, and the cap imposed at that time applied to both solvent and insolvent debtors. Thus, to 

    5 Another provision of the 1934 legislation amended Section 63(a) of the Bankruptcy 
Act to include a similar limit on landlords’ claims. It provided that the claim “shall in no event 
be allowed in an amount exceeding” the cap. 48 Stat. at 924. This formulation is similar to 
Section 502(b)(6), and Section 63(a) was cross-referenced in Section 77B(b). See id. at 915. 
The use of both phrases to describe the same concept in a single piece of legislation suggests 
that they are fundamentally equivalent.                                   
    6 The Landlord insists in its supplemental brief that Kuehner is “devoid of any reference 
to [the debtor’s] solvency.” But the first question presented to the Court was whether the 
landlord’s claim in excess of the statutory cap had “priority over the interests of stockholders.” 
Kuehner, 

299 U.S. at 447

. It is irrelevant whether the debtor in that case had been determined 
to be solvent or whether, as in this case, the parties were disputing what would happen if the 
debtor should turn out to be solvent.                                     
the extent that there is a role here for the principle that courts “will not read the Bankruptcy 
Code to erode past bankruptcy practice absent a clear indication that Congress intended such 
a departure,” it favors the Debtors’ position, not the Landlord’s. Cohen v. de la Cruz, 

523 U.S. 213, 221

 (1998) (cleaned up).                                             
    B.   Best-Interests-of-Creditors Objection                           
    The Landlord’s second argument is more complicated. It involves six steps. 
    One: Section 1129(a)(7) of the Bankruptcy Code, known as the best-interests-of-
creditors test, requires that each holder of a claim in an impaired class either accept the plan 
or “receive or retain under the plan on account of such claim . . .  property of a value, as of 
the effective date of the plan, that is not less than the amount that such holder would so receive 
or retain if the debtor were liquidated under chapter 7 of [the Code] on such date.” 

11 U.S.C. § 1129

(a)(7)(A)(ii).                                                      
    Two: although the Section 502(b)(6) cap limits the amount that a landlord may recover 
from the bankruptcy estate, it does not extinguish liability for the excess. See, e.g., In re Modern 
Textile, Inc., 

900 F.2d 1184

, 1191 (8th Cir. 1990) (landlord may pursue non-debtor guarantor); 
Wigley, 

15 F.4th at 1212

 (landlord may pursue full claim if it is excepted from discharge). 
    Three: when a solvent debtor liquidates in Chapter 7, the trustee makes distributions 
to creditors and returns the excess to the debtor. See 

11 U.S.C. § 726

(a). 
    Four: a corporate debtor does not receive a discharge in Chapter 7. See 

11 U.S.C. § 727

(a)(1). When a solvent corporate debtor receives the surplus of the bankruptcy estate 
from the trustee under Section 726(a)(6), it remains liable for any debts the trustee has not 
satisfied.                                                                
    Five: under general principles of corporate law, and in particular in Delaware, where 
the Debtor is incorporated, a company must pay its creditors before its shareholders. See 8 
Del. Code § 281 (requiring dissolved corporation to pay or make provision for debts before 
distributing  assets  to  shareholders).  If  the  Debtor  received  assets  that  remained  after  a 
hypothetical Chapter 7 liquidation, it would need to pay the balance of the Landlord’s claim 
before making distributions to its shareholders.                          
    Six: because the Landlord would recover the full, uncapped amount of its claim in a 
hypothetical Chapter 7 liquidation, it must recover the full, uncapped amount under the Plan 
as well.                                                                  
    The  Landlord  has  not  cited  any  decisions  adopting  its  interpretation  of  Section 
1129(a)(7).7 Assuming for the sake of analysis that the preliminary points above are sound, I 
nevertheless disagree with the conclusions the Landlord draws, for two principal reasons. 
    First, the plain language of Section 1129(a)(7) requires a comparison of apples to 
apples. The question is whether a creditor will “receive or retain under the plan on account 
of such claim . . .  property of a value” that at least equals “the amount that [the creditor] 
would  so  receive  or  retain  if  the  debtor  were  liquidated  under  chapter  7.”  

11 U.S.C. § 1129

(a)(7)(A)(ii) (emphasis added). The word “so” calls for a parallel structure here: it 
initially suggests that we must compare what the creditor recovers “under the plan on account 
of such claim” in Chapter 11 to what the creditor would recover “under the plan on account 
of such claim” in Chapter 7. The comparison cannot be quite so literal, because there is no 
plan in a Chapter 7 case, but it is just as straightforward to interpret the statute to require an 
analysis of what the creditor would recover from the bankruptcy estate in each chapter. See Dow 
Corning, 237 B.R. at 411 (“[C]ourts look at the dividend the creditor would receive from the 
chapter 7 trustee—and only that amount—for comparison with the dividend available under 
the plan.”). And by the Landlord’s own analysis, it would receive only the capped amount 
from the estate in either scenario.                                       

    7 The Landlord argues that the case most favorable to its position is In re Liberate 
Technologies, 

314 B.R. 206

 (Bankr. N.D. Cal. 2004), but it acknowledges that the context is 
different. Liberate involved a landlord’s motion to dismiss the Chapter 11 case of a solvent 
debtor as a bad-faith filing. See 

id. at 209

. Although much of the court’s opinion discussed the 
Section 502(b)(6) cap as though it would be enforceable if the case proceeded, the court stated 
in a footnote near the end that if the debtor did not continue in business, it would not receive 
a discharge, and the debtor “would then remain liable to [the landlord] for the full amount 
due under state law.” 

Id.

 at 218 n.9. The Liberate court did not hold that the cap does not apply 
to a solvent debtor or that the best-interests test requires payment of a landlord’s claim in full. 
    A closer case, though not cited by the Landlord, is In re Dow Corning Corp., 

237 B.R. 380

  (Bankr.  E.D.  Mich.  1999).  The  court  in  Dow Corning  contemplated  but  rejected  a 
“decidedly  novel”  argument  that  echoes  the  Landlord’s:  the  best-interests  test  “should 
account for the value of any cause of action that a creditor would retain against a chapter 7 
corporate debtor.” 

Id. at 411

. It recognized that no court had ever discussed or decided the 
question and that the Collier treatise did not support it. See 

id.

 at 411 n.20. Twenty-six years 
later, the situation appears to be much the same. See 7 Collier on Bankruptcy ¶ 1129.02[7][b] 
&  n.84a  (16th  ed.  2025)  (stating  that  test  measures  creditor’s  “hypothetical  chapter  7 
distribution” and not “potential receipt of recoveries from those co-liable with the debtor”). 
    Second, Section 1129(a)(7) applies only to a class of impaired claims. See 

11 U.S.C. § 1129

(a)(7). The Debtor has classified the Landlord’s class as impaired, apparently because 
of uncertainty about whether and when the claims of unsecured creditors may be paid in full. 
But in a case involving fewer creditors and a debtor that is unquestionably solvent, the debtor 
might classify a landlord separately, commit to paying its capped claim in full upon plan 
confirmation, and thus treat the landlord as unimpaired.8 The landlord in that hypothetical 
case, with an obviously solvent debtor, would not be able to invoke the best-interests test, 
while the Landlord in this case, with a potentially solvent debtor, claims that the best-interests 
test requires payment of its claim in full, without regard to the cap. That is an absurd result. 
    C.   De Facto Discharge and Related Arguments                        
    Although the Debtor is not entitled to a discharge, and the Plan states as much in 
Article VIII, Section A, the Landlord argues that a number of provisions in the Plan have the 
effect of awarding the Debtor a discharge anyway.                         
         1.   Section 1141 arguments                                     
    The Landlord first takes issue with language providing that all creditors are bound by 
the Plan and that the Debtor’s assets will vest in the Plan Administration Trust free and clear 
of creditors’ claims. This language does not enjoin the Landlord from commencing or 
continuing an action to recover from the Debtor, which is what a discharge would do. See 

11 U.S.C. § 524

(a)(2).  But the Landlord contends that it has the same effect and, moreover, that 
it is inconsistent with Sections 1141(a) and (c) of the Bankruptcy Code.  
    These statutes describe the effect of plan confirmation, and their general substance is 
consistent with the Plan. Section 1141(a), for example, states that “the provisions of a 
confirmed plan bind … any creditor.” And Section 1141(c) says that “the property dealt with 
by the plan is free and clear of all claims and interests of creditors,” unless the plan or the 
confirmation order states otherwise. But each section also includes this introductory language: 
“Except as provided in subsections (d)(2) and (d)(3) of this section.” 

11 U.S.C. §§ 1141

(a), (c). 
Because Section 1141(d)(3) is the Code provision that denies a discharge to a liquidating 

    8 Courts generally conclude that a claim is not impaired if it receives the treatment 
provided by the Bankruptcy Code, such as the Section 502(b)(6) cap. See, e.g., PPI, 

228 B.R. at 353

 (distinguishing between “plan impairment” and “statutory impairment”); In re K Lunde, 
LLC, 

513 B.R. 587, 597

 (Bankr. D. Colo. 2014); In re American Solar King Corp., 

90 B.R. 808, 820

 (Bankr. W.D. Tex. 1988).                                              
corporate debtor, the Landlord argues that such a debtor cannot bind creditors to the terms of 
a plan or have its assets emerge from Chapter 11 free and clear of claims. 
    Some courts have used sweeping language when describing the binding effect of a plan 
on a debt excepted from discharge, which is the subject of the related cross-reference to 
Section 1141(d)(2). For example, the Tenth Circuit stated, “Although a confirmed plan 
generally binds any creditor regardless of whether the creditor’s claim is impaired by the plan 
or whether the creditor accepted the plan, the same is not true of a creditor whose claim is 
nondischargeable.” In re DePaolo, 

45 F.3d 373

, 375 (10th Cir. 1995) (cleaned up). The question 
in that case, however, was not whether the creditor was free to ignore every aspect of the 
confirmed plan; it was whether the creditor was bound by language generally discharging all 
of the debtor’s debts when its claim was not dischargeable as a matter of law. See id. at 374. 
Similarly, another court stated boldly that “the holders of the nondischargeable claims are not 
bound by the provisions of a confirmed plan.” In re Adelman, 

90 B.R. 1012, 1018

 (Bankr. 
D.S.D. 1988). But two sentences later, the court reached a conclusion pertinent to the more 
limited dispute before it: “[A] holder of a nondischargeable claim may execute or collect on 
his nondischargeable debt without regard to the discharge provisions of the plan.” 

Id.

 
    More recently, the Ninth Circuit Bankruptcy Appellate Panel adopted a narrower 
interpretation of Sections 1141(a) and (c). See In re Brotby, 

303 B.R. 177

 (B.A.P. 9th Cir. 2003).  
It concluded that “while all creditors are bound by the provisions of a confirmed plan, this 
binding effect cannot operate to discharge an otherwise nondischargeable debt.” 

Id. at 189

. 
Similarly, “while confirmation of a plan releases all property dealt with by the plan from the 
claims of creditors, the plan cannot release property from § 523 claims.” Id. And thus, in 
appropriate  circumstances,  a  Chapter  11  plan  may  include  an  injunction  limiting  the 
collection rights of holders of non-dischargeable debts while the debtor makes payments to all 
creditors. See id. at 190.                                                
    This narrow interpretation is consistent with the plain language, structure, and context 
of Section 1141, as well as common sense. The introductory phrase “except as provided in” 
suggests that there may be conflicts between two statutes, and if there are, the statute identified 
as exceptional should control. As applied to the statutes here, a plan that contains a discharge 
is not enforceable to the extent that the discharge is inappropriate, either as to a single debt or 
as to all debts of a liquidating corporation. But that does not mean that no aspect of the plan 
is enforceable. Chapter 11 plans often contain provisions having little to do with the discharge 
of debts—such as approval of the sale of remaining assets and the appointment of persons to 
conduct the liquidation—and nothing in the statute suggests that Congress believed that 
creditors with non-dischargeable debts should be able to ignore them.     
    For example, the Plan contemplates the sale of the stock of the Lemonaid Debtors to 
a third party for cash. There is no reason why the Landlord or any other creditor should be 
permitted to ignore the validity of the sale and pursue the stock in the hands of the purchaser, 
nor should the cash proceeds be distributed to whichever creditor obtains an execution 
warrant first. Even though the Debtor is not receiving a discharge, the Plan provides for the 
orderly distribution of its assets, and creditors must comply with its requirements. See In re AB 
Liquidation Corp., No. 06-1024, 

2006 WL 6810956

, at *6 (B.A.P. 9th Cir. Dec. 22, 2006) (lack 
of discharge “does not . . . allow [creditor] to pursue its claim against the plan proceeds”). 
The holder of a claim that is not discharged must find another path to payment in full. 
    Congress clearly contemplated that corporate debtors could confirm liquidating plans 
in Chapter 11. See, e.g., 

11 U.S.C. §§ 1123

(b)(4) (authorizing sale of all debtor’s property and 
distribution of proceeds among creditors and shareholders); 1129(a)(11) (recognizing that 
liquidation  may  be  proposed  in  a  plan);  1141(d)(3)(A)  (same).  But  if  the  Landlord’s 
interpretation of Section 1141 were correct, there would be little—perhaps nothing—for a 
liquidating debtor to gain from confirmation of a plan, because creditors could ignore the plan 
and pick the debtor’s assets apart at will. If this were the result that Congress intended, it 
would have been simpler for it to preclude liquidating corporations from confirming Chapter 
11 plans in the first place.9                                             
         2.   Other arguments                                            
    The Landlord also objects to eight provisions of the plan that, in its view, attempt to 
deem its rejection-damages claim to be fully satisfied, purport to impose on the Landlord a 
settlement to which it has not agreed, or otherwise are inconsistent with the lack of a discharge 
for a liquidating corporate debtor.                                       
    Two of the challenged provisions include the word “discharge.” For example, Article 
III, Section D of the Plan states that the treatment provided in the Plan is “in full and final 
satisfaction,  compromise,  settlement,  release,  and  discharge  of  and  in  exchange  for  [a 
creditor’s] Allowed Claim.” Article IV, Section I provides that “all agreements . . .  evidencing 
Claims or Interests . . . shall automatically be deemed discharged, cancelled, and of no further 
force and effect, and the obligations of the Debtors . . .  shall be deemed satisfied in full, 

    9 A liquidating corporation is denied a discharge to prevent “trafficking in corporate 
shells and bankrupt partnerships.” H.R. Rep. No. 95-595, at 384 (1977), reprinted in 1978 
U.S.C.C.A.N. 5963, 6340; see also In re Fairchild Aircraft Corp., 

128 B.R. 976, 982

 (Bankr. W.D. 
Tex. 1991) (same). For the reasons discussed here, the Landlord will have the right to pursue 
the Debtor if, for some reason, it is reanimated and holds assets.        
cancelled, discharged, release, and of no force and effect.” In context, it is clear that both of 
these excerpts use the term “discharged” in the sense of “satisfied” rather than the Bankruptcy 
Code’s sense of “not collectible as a personal liability.” See 

11 U.S.C. § 524

(a). Nevertheless, 
it is possible to construe these phrases broadly to mean that the Landlord retains no recourse 
after confirmation against the Debtor or any other person who may be liable for the Debtor’s 
obligations, such as a guarantor. That would be inconsistent with a discharge under Section 
524(a), even if the Debtor were entitled to receive one. See Zavelo v. Reeves, 

227 U.S. 625, 629

 
(1913) (“[T]he discharge destroys the remedy, but not the indebtedness.”); 

11 U.S.C. § 524

(e). 
    Another provision in Article IV, Section E does not use the word “discharge,” but it 
comes even closer to the bankruptcy-law meaning of that term. It says that “Holders of Claims 
or Interests are enjoined from asserting against any Debtor or any Wind-Down Debtor any 
Claims or Interests and may not proceed in any manner against any Debtor or Wind-Down 
Debtor on account of any Claim or Interests in any other forum whatsoever.” Although this 
language can be read as a sensible warning to creditors that they should not waste their time 
and money suing entities that have no remaining assets, it also can be construed as essentially 
a discharge injunction.                                                   
    By contrast, another challenged provision is not a problem at all. Located in Article 
III, Section F, it states that “in no case shall the aggregate value of all property received or 
retained under the Plan on account of any Allowed Claim exceed the amount of the Allowed 
Claim.” No creditor is entitled to more under the Plan than full satisfaction of its allowed 
claim, even if that claim is capped under Section 502(b)(6), as discussed above. 
    The remainder of the Landlord’s objections to what it contends are discharge-like 
elements of the Plan are generally similar to those discussed above. I will therefore address 
all of these objections en masse by including language in the confirmation order clarifying 
(1) that the Landlord’s claim is not discharged; (2) that nothing in the Plan extinguishes any 
liability of the Debtor (including in its capacity as a Wind-Down Debtor) to the Landlord 
under the terms of the parties’ lease, nor any related or derivative liability of any non-debtor 
to the Landlord; and (3) that the Landlord nevertheless is not entitled to any greater recovery 
under the Plan or from the Plan Administration Trust than that set forth in the Plan. See In re 
Midway Gold US, Inc., 

575 B.R. 475, 515

 (Bankr. D. Colo. 2017) (noting that similar language 
in plan was sufficient to overcome other plan provisions that might have been impermissible 
in liquidating corporate Chapter 11 case).                                
    D.   Absolute Priority                                               
    At the confirmation hearing, the Landlord argued that the Plan does not comply with 
the absolute-priority rule of Section 1129(b)(2)(B) of the Bankruptcy Code because it does not 
specifically adopt one of the two options set forth there: payment in full of allowed claims of 
unsecured creditors or elimination of the interests of shareholders. The Landlord did not 
include this argument in its written objection to confirmation, but it argues—correctly—that 
the ballot report showing that the Landlord’s class of creditors voted to reject the Plan was 
not filed until after the objection deadline. Because only a rejecting class may invoke the 
absolute-priority rule, see 

11 U.S.C. § 1129

(b)(1), I will treat the Landlord’s argument as 
timely.10                                                                 
    Nevertheless, the objection is not sound. The absolute-priority rule requires one of two 
outcomes in this case, and the Plan will yield one or the other. Many Chapter 11 debtors 
know at the time of confirmation that they are insolvent, and an occasional debtor is confident 
of its solvency. These debtors typically propose plans, respectively, that eliminate equity or 
guarantee payment in full of allowed claims. But nothing requires a debtor with assets or 
liabilities of uncertain value to commit preemptively to one of the two absolute-priority 
outcomes  before  it  administers  its  assets  and  reconciles  its  liabilities.  See In re Introgen 
Therapeutics, Inc., 

429 B.R. 570, 585

 (Bankr. W.D. Tex. 2010) (rejecting absolute-priority 
objection because “[t]he only way Class 4 [equity] will receive anything is if Class 3 in fact 
gets paid in full”).                                                      
    The waterfall built into the Plan ensures that shareholders will not be paid before 
allowed claims of creditors are satisfied. Section 1129(b)(2)(B) requires no more than that. 
    E.   Third-Party Releases                                            
    The Landlord’s written objection to confirmation includes a short objection to the 
third-party releases in the Plan. The Landlord did not press this objection at the confirmation 
hearing after other parties announced a consensual resolution of their similar objections. But, 
in any event, the Landlord opted out of the third-party releases and lacks standing to challenge 

    10 In its supplemental brief, the Landlord expands its absolute-priority argument to 
include other, uncodified aspects of the requirement that a plan be “fair and equitable” to an 
impaired, non-accepting class of creditors. 

11 U.S.C. § 1129

(b)(1). This argument is not 
timely. But in any event, for the reasons explained above, Congress has determined how a 
debtor’s assets should be distributed, and there is no basis for me to determine that some other 
result would be more fair.                                                
                                 'y tw VT aw 

them. See Mercy Health Network, Inc. v. Mercy Hospital, 

671 B.R. 499

, 507 (N.D. Iowa 2025); In 
re Indianapolis Downs, LLC, 

486 B.R. 286, 304

 (Bankr. D. Del. 2013). 
IV.    Conclusion 
     For  these  reasons,  I  will  enter  a  separate  order  that  confirms  the  Plan,  makes 
appropriate findings of fact and conclusions of law,  and includes language addressing the 
discharge-related issues discussed above. 

Dated:  November 26, 2025                               Be    C  W. 
St. Louis, Missouri                                     Brian C. Walsh 
cjs                                                  United States Bankruptcy Judge