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Dated: May 21, 2026.

Chet hpin G. Brot,

CHRISTOPHER G. BRADLEY

UNITED STATES BANKRUPTCY JUDGE

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE WESTERN DISTRICT OF TEXAS

AUSTIN DIVISION

In re: §

§ Case No. 24-10264-cgb

RIC (AUSTIN), LLC,

§ Chapter 11

Debtor. §

§

PANACHE DEVELOPMENT & §

CONSTRUCTION, INC., et al., §

Plaintiffs and Counter-Defendants, §

:

ROMSPEN MORTGAGE, LP, §

ROMSPEN (REOMASTER) § Adv. No. 24-01061-cgb

HOLDINGS, INC., §

Defendants and Counter-Plaintiffs. §

§

V. §

§

Adam Zarafshani, an individual, §

Third-Party Defendant. §

COMBINED OPINION ON PLAN CONFIRMATION

AND ADVERSARY PROCEEDING

On February 26, 2026, RIC (Austin), LLC (the “Debtor”) filed its Combined

Disclosure Statement and Second Amended Chapter 11 Plan (the “Plan”).1 The

Court held a hearing on the Plan, along with trial of the related adversary

proceeding,2 from April 22, 2026 to April 28, 2026. At the conclusion of the hearing,

the Court took confirmation and the adversary proceeding under advisement.

In this opinion, the Court explains why it will confirm the Plan, deny the

Panache Parties’ claims for equitable subordination and recharacterization as well

as their objection to the Romspen Parties’ claims, and find a breach of the

Subordination and Intercreditor Agreement contract by AFMN. The Court will

withhold a ruling on remedies for breach of contract at this time pending further

briefing and proceedings.

Summary/Preliminary Statement

Because it is easy in a case of this complexity to “lose the forests for the trees,”

and because the Court is producing this opinion under some time pressure but feels

that a ruling on a case as vigorously litigated as this deserves a fulsome explanation,

the Court includes this preliminary statement intended to provide an overview of the

Court’s view of this case as a whole together with some facts and observations that

apply to all of the findings below.

This matter has been on the Court’s docket, and has been a lot of work for all

of the attorneys as well as the Court, for well over a year. Although the Court has

had to make this ruling fairly soon after trial because the estate is running out of

money, there is nothing in this ruling that has not been considered carefully and at

length based on everything in the record and all of the manifold arguments made by

the parties. Below, the Court has tried to explain its views as to the most substantive

arguments, but in any case, even arguments that have not been specifically addressed

here have, in fact, been considered carefully, and this ruling disposes of them.

The group that the Court is going to call the Panache Parties (or sometimes

“Mr. Zarafshani,” since they are all effectively his) are going to lose on the key

issues, but not for want of effort. They have left no stone unturned. They brought a

very large number of theories (some now abandoned) and engaged in a remarkably

broad discovery, which, even over forceful objection, the Court largely permitted.

1 In re RIC (Austin), LLC, No. 24-10264 (the “Main Case”), ECF No. 288 (Plan).

2 Panache v. Romspen (In re RIC (Austin), LLC), Adv. No. 24-01061 (the “Adversary

Proceeding”).

Ultimately, they tried this case with a large team of skilled and experienced and well-

prepared counsel, airing many of Romspen’s internal documents, cross-examining

numerous high-ranking executives at length, and so on.

This case is about a troubled commercial development in East Austin

sometimes called the Motorola site. Romspen had loaned a large amount of money

to this development, under the name Zen Garden, before a prior bankruptcy, in which

Mr. Adam Zarafshani was also involved as part owner and developer.

In the Zen Garden bankruptcy, in order to avoid a lengthy court fight about

allegations Mr. Zarafshani brought that were notably similar to those brought here,

the parties reached a deal pursuant to which Mr. Zarafshani and Romspen would

split the equity in a new ownership entity, Romspen’s existing debt would be prior

to Mr. Zarafshani’s existing debt, and construction debt funded by either Romspen

or another lender would come in at higher priority than either.

Fundamentally, this case is about Mr. Zarafshani trying to get out of the deal

he made back in the Zen Garden bankruptcy. That deal has not worked out well for

either party, and the property remains in sad shape to this day despite the immense

sums that have been sunk into it.

As noted, the Zen Garden deal put Mr. Zarafshani’s equity interest, as well as

the debt owed him, junior to a very large chunk of Romspen debt as well as new

construction debt to be incurred. In other words, he would only come into the money

if the project was successful enough at least to pay Romspen’s existing debt and the

construction loan back.

Romspen itself ended up funding the construction; the parties were never able

to bring in another lender, in part because the project, and even the plans for the

project, were never in good enough shape. (The Panache Parties claim Romspen

prevented other lenders from coming in, but the Court did not find this claim

credible. 3 ) In any case, the new construction debt was incurred: Romspen

3 Much credible testimony in the record demonstrates that there were numerous bars to

financing, including the condition of the property and the lack of detailed budgets, and most

of the bars were due directly to the Panache Parties. Even Mr. Weldon indicated Romspen’s

support of financing. Adversary Proceeding, ECF No. 187, Trial Tr. (Day 2, April 23, 2026)

at 107:6-9 (“Was RMLP supportive of obtaining third-party financing so that -- as set forth

in the binding term sheet? MR. WELDON: Yes.”). See also id. at 13:12-16 (third-party

lender would want the information Romspen was requesting but had not received, “if not

infused more than $37 million in additional funds into the property, largely spent at

Mr. Zarafshani’s discretion with little oversight and little demonstrable progress,

including no ability to attract any actual tenants.4 Despite this new money loaned

and the passage of time, the property remained far away from the goals the parties

had for it. Romspen understandably lost faith in the project and asked Mr. Zarafshani

to curtail spending sharply and ultimately to step back from his construction role

while preserving other roles, for instance in marketing the project. Faced with

Romspen’s decision to remove him from his role in construction of the project, he

walked from the remaining roles that Romspen wanted him to play.5

Ultimately one of his affiliates filed this involuntary bankruptcy case.

Panache/Zarafshani didn’t put any money on the table to make the case a success or

to preserve the bankruptcy estate’s property, however—they left that, again, to

Romspen, which funded another $5+ million into this bankruptcy case, money that

was used to hire estate professionals who have managed the property and proposed

a plan of reorganization. They held an auction for the equity in the project. The

Panache Parties chose not to participate in that auction, but Romspen again put its

money into the plan and won the auction.

Despite Romspen’s immense investments that have not shown much by way

of results, Mr. Zarafshani strenuously argues that Romspen’s fiduciary duty required

it to infuse another $37 million or more into the property. In filing the adversary

proceeding against Romspen and in opposing confirmation of the Debtor’s plan, Mr.

Zarafshani seeks to put his interests above Romspen’s interests—both new and old.

He and his affiliate entities and their large legal team have litigated to that effect,

throwing up a large number of theories and angles to try to overturn the effect of the

legal arrangements to which Mr. Zarafshani knowingly consented and to unseat the

realities of this failed project.

more”); ECF No., 191, Trial Tr. (Day 4, April 27, 2026) at 7-11 (third party financing

unlikely without information).

4 Adversary Proceeding, ECF No. 187, Trial Tr. (Day 2, April 23, 2026) at 122:7-13 (“So by

the time early 2022 came about, had you gotten to any more level of certainty as to when

space would be available at FH&J to be available for leasing? MR. WELDON: We had

brought on more people into the team, and they all came to the same conclusion, that we

didn’t have any certainty as to the dates that we would be able to get this property ready for

leasing.”). See also id. at 142:7-23 (lack of completion estimates, meeting expectations

concerning leasing, resolution of steel and foundation issues).

5 See generally Adversary Proceeding, ECF No. 187, Trial Tr. (Day 2, April 23, 2026) at

170:25-177:9-76.

As with most trials, the Court came into this one not knowing what to expect.

The parties’ statements of facts and allegations left a very wide gulf between them.

The stories they told were very, very different. Both were reasonably plausible. The

Court had taken each party to task at various points in the litigation, but it also

thought both teams of lawyers would do an excellent job (and that proved correct).

Still, the Court didn’t know which story was likely to be borne out once it had the

facts before it, once it had heard from witnesses, once it had scrutinized exhibits.

But in the end, the Court came away with a very firm conviction that on all of

the core issues, Romspen and the Debtor must prevail.

The plan is certainly confirmable, and the Court will confirm it. Mr. Milligan,

his team, and his lawyers have steered the Debtor through a difficult course. The

Court credits their testimony that they tried to obtain consensus, that they gave

Panache every chance to participate more actively in this proceeding, and that they

sought the best and most neutral outcome they could for the benefit of this estate.

They didn’t bring the difficulties into this case—and of course it was actually

Panache-affiliated parties who filed the bankruptcy case in the first place—but they

did their best to untangle those difficulties sufficiently to get this plan confirmed and

reach a workable resolution for the estate.

The Court has dealt with legal arguments and made factual findings below,

but as a matter of practicality it is worth noting that none of the Panache Parties

sought to fund this case, to keep the property taken care of as this case dragged on—

nor did they bid on the equity at the auction that was held. In that vacuum, Romspen

stepped in and funded the case and allowed Mr. Milligan and his team to do what

was necessary to bring this case to a successful conclusion without significant

interference.

A theme of the Court’s holding on confirmation as well as on the adversary

proceeding is that, frankly, Romspen has not behaved nearly as aggressively as it

probably could have. In my view, from the time of the Zen Garden bankruptcy

through its behavior in this bankruptcy, it has erred on the side of caution. Not with

every one of its internal emails—but with respect to its actual actions. It inarguably

funded a large amount of money into this project, and furthermore, trusted a great

deal in Mr. Zarafshani’s discretion as contractor. It finally took steps to rein in the

pace of funding and to put him in a different role, but he is the one who stepped away

from the project entirely and ultimately placed the Debtor into an involuntary

bankruptcy case. It was then Romspen who stepped up to fund that bankruptcy case,

but even there, it did not insist on having a stranglehold on the outcome of the case—

which is common with debtor-in-possession financing when no one else steps up. It

permitted an auction and didn’t even demand that its DIP loan be repaid up front in

the auction.

The Court believes that Romspen ultimately behaved fairly to Mr. Zarafshani

and his entities under the actual facts and circumstances, in fact going out of their

way to give more chances for participation, and for success, at every stage of this

relationship, than the Court would expect. In fact, it would be grossly inequitable for

Mr. Zarafshani to win this lawsuit or prevent confirmation of the proposed plan

given his profoundly subordinate position, the amount of funding that Romspen has

put into this project, and the agreements that Mr. Zarafshani made, which include

his undertaking significant financial risks that have unfortunately now been realized.

Accordingly, the Court will confirm the plan, deny the Panache Party’s claims, and

grant most of Romspen’s claims.

The Court found all of the Romspen witnesses to be credible. Take Mr.

Weldon, for instance. Within Romspen, he was apparently the pro-Zarafshani voice,

and the Panache Parties have picked numerous parts of his emails and made great

use of them. And yet even his contemporaneous emails reflect an acknowledgement

that the project had not progressed as anticipated. In addition, the Court found his

testimony credible that he got carried away at times in those days (when he also had

gone/was going through significant personal difficulties) and that some of his

correspondence reflects heated rhetoric and loss of perspective, not considered

judgment.6

There are other intemperate statements by Romspen executives that have been

pointed out and used very actively by the Panache Parties. But—looking beyond the

parts cherry-picked by the highly skilled litigators for the Panache Parties—what the

Court sees from its review of these emails as a whole, together with the extensive

testimony received at trial, was a team that was very actively and seriously

discussing what to do with a project that had been problematic for a long time. The

intemperate remarks were in the context of lengthy exchanges about the project,

about who should be believed and where the project really stood. Ultimately, the

Court believes these exchanges reflect good faith decision-making. If there really

had been some plot—any pre-arranged inequitable design of any sort—then complex

and passionate emails like these would be unlikely to exist: The emails show that the

course of action was anything but a fait accompli. To the contrary, it was an active

topic of discussion being weighed within this organization. The fact that there may

6 Adversary Proceeding, ECF No. 187, Trial Tr. (Day 2, April 23, 2026) at pages 167:3-169:17.

have been frustration or even disdain for Mr. Zarafshani does not alter this fact. In

fact, certain of his skills were recognized and he was offered an important ongoing

role (which he refused) even after Romspen didn’t want to entrust construction to

him anymore.

Finally, as for the fact that Romspen’s liquidity and the macroeconomic

climate of the time was a factor in its decision-making: A lender cannot and does not

have to ignore its own financial constraints in making decisions, even it also holds

and controls an equity interest through which it has fiduciary duties to another party.

The evidence was that Romspen had sufficient liquidity and in fact did continue

paying a significant amount into this project even once it began trying to impose

more controls on Mr. Zarafshani’s spending.7 These constraints were not the reason

the Project failed.

This goes to the broader apparent view of the Panache Parties, which was that

Romspen, to discharge its duties, had to pour much more money into this property,8

after already pouring more than $37 million dollars into the property with what it

very reasonably considered to be far-below-expectation results. As already

mentioned, my view is that Romspen, probably because of its litigious history with

Panache/Zarafshani and perhaps also Mr. Zarafshani’s perceived centrality to the

success of this project, went above and beyond, funding this project freely for a

lengthy period and, in bankruptcy, giving the Debtor a freer hand, than it probably

would have in a truly arm’s length deal (in other words, even if it hadn’t owed

fiduciary duties).

A final preliminary thought comes in the form of a couple of inter-related

questions: What progress did Panache/Zarafshani make with the $37 million that

Romspen poured into the Debtor in the construction loan? Was there a workable plan

for this property? It seems like an obvious point to raise. Romspen’s witnesses

consistently and convincingly pointed to the perceived lack of a plan or

demonstrable progress in explaining their actions. Yet the Panache Parties put up

7 See, e.g., Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 65:20-

24; Trial Tr. (Day 5, April 28, 2026) at 49:24-25.

8 Adversary Proceeding, ECF No. 192, Trial Tr. (Day 5, April 28, 2026) at 182:6-17 (“THE

COURT: How much -- I mean, so they put $37 million into this project from that time period,

which seems to me like a lot of money, and they -- how much more – what’s the evidence

for how much more they had to spend to have discharged their fiduciary duties? MS.

CURTIS: So I believe there were emails from Mr. Weldon among the partners. And I don’t

have it in front of me. But there was an email saying, essentially, you know, there’s -- we

need, essentially, $37 million more, to $40 million more, to complete the project”).

surprisingly little convincing evidence on this point. As discussed below, Mr.

Zarafshani’s testimony was not generally credible, but in any event he didn’t really

have much to say on this point aside from generalities. The absence is perhaps telling.

Jurisdiction and Authority

This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and

1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). Venue is proper

under 28 U.S.C. §§ 1408(1), 1409(a) and the Order of Reference of Bankruptcy

Cases and Proceedings entered by the District Court for the Western District of

Texas on October 4, 2013. The Court has final adjudicatory authority because all

parties consented to the Court’s resolution of the Adversary Proceeding, and

confirmation of plans of reorganization is purely a matter of bankruptcy law and

does not require the resolution of any matter similar to “the stuff of the traditional

actions at common law tried by the courts at Westminster in 1789.”9

Background and Procedural History

This case began as an involuntary chapter 7 case filed by the petitioning

creditor, Panache Development & Construction, Inc. (“Panache”), an entity

controlled by Adam Zarafshani.10 It is the second bankruptcy proceeding filed

related to a large commercial redevelopment project at the old Motorola site in

Austin, Texas (the “Project”).11 The first case, In re 3443 Zen Garden, LP, was filed

as an involuntary petition in March of 2020 and was later converted to a voluntary

case under chapter 11 (the “Zen Garden Case”).12 In that case, Romspen Mortgage

Limited Partnership (“Romspen” or “RMLP”), the senior lender, filed a secured

claim for over $96 million.13 Panache, the general contractor for the project, filed a

claim for over $11.8 million, which included a secured claim of over $5 million.14

9 Stern v. Marshall, 564 U.S. 462, 484 (2011) (quoting Northern Pipeline Co. v. Marathon

Pipe Line Co., 458 U.S. 50, 90 (1982) (Rehnquist, J., concurring in judgment)).

10 Main Case, ECF No. 1 (Involuntary Petition); Adversary Proceeding, ECF No. 190, Trial Tr.

(Day 3, April 24, 2026) at 19:23-20:1 (“Q All right. And who owns Panache? A I do. Q

Okay. And you control Panache, correct? A Correct.”).

11 In re 3443 Zen Garden, LP, Case No. 20-10410 (plan confirmed on January 2, 2021 and

closed on August 23, 2022).

12 In re 3443 Zen Garden, LP, Case No. 20-10410 (plan confirmed on January 2, 2021 and

closed on August 23, 2022).

13 In re 3443 Zen Garden, LP, Case No. 20-10410, Claim No. 14-1.

14 In re 3443 Zen Garden, LP, Case No. 20-10410, Claim No. 22-1.

During the Zen Garden Case, Panache and several other creditors filed an

adversary proceeding seeking equitable subordination of Romspen’s claim and the

limitation of Romspen’s credit bid rights in an upcoming sale of the Project.15

Ultimately, Romspen and Panache settled their dispute and Romspen credit bid $45

million of its claim to purchase the Project.16

The settlement between Romspen and Panache led to the creation of RIC

(Austin).17 In the term sheet documenting the settlement (the “Binding Term Sheet”),

Romspen and Mr. Zarafshani split ownership of the Debtor but agreed that Romspen

would have ultimate control and decision-making authority.18 In keeping with this

structure, the Debtor was formed and took ownership of the Project.19 Around the

same time, Romspen formed Romspen (Reomaster) Holdings, Inc. (“Reomaster”) to

hold its 75% equity interest and Mr. Zarafshani formed Vesta Texas, LLC (“Vesta

Texas”), which is controlled by Mr. Zarafshani and his wife, to hold his 25% equity

interest in the Debtor. 20 The Binding Term Sheet included various other provisions,

including Romspen’s agreement to forebear on seeking to collect on its guarantee

from Mr. Zarafshani21 and both parties’ agreement that they would have fiduciary

duties to one another,22 a fact that the Panache Parties have averted to many times in

this litigation.23

15 Austin Glass & Mirror, Inc. v. Romspen Mortgage Ltd. P’ship (In re 3443 Zen Garden, LP),

Adv. No. 20-01048, ECF No. 1.

16 In re 3443 Zen Garden, LP, Case No. 20-10410, ECF No. 278 (Order authorizing sale of the

Project to Romspen through $45,000,000 credit bid).

17 Debtor Ex. 1, ¶ 1.1.

18 Panache Ex. 324 ¶ 4 (“The equity interests of the New Owner will be: (a) 74% owned

(whether directly or indirectly) by an entity exclusively owned and controlled by the Lender;

(b) 24% owned (whether directly or indirectly) by an entity exclusively owned and controlled

by Zarafshani or an estate-planning trust exclusively controlled by Zarafshani (“Zarafshani

Owner Entity”) and (c) 2% owned by an entity as the managing member, general partner

and/or other control equity holder of the New Owner (“Managing Entity).”) (Binding Term

Sheet). Ultimately, it appears the parties split ownership 75%/25%; Ex. 54 (RIC (Austin)

LLC agreement signed by Reomaster as managing member and Mr. Zarafshani on behalf of

Vesta Texas as the “Zarafshani Member”).

19 Panache Ex. 501, ¶¶ 2.1, 2.4 (RIC (Austin) LLC Agreement).

20 Adversary Proceeding, ECF No. 190, Trial Tr. (Day 3, April 24, 2026) at 20:2-3 (“Q And

you control Vesta Texas, correct? MR. ZARAFSHANI: My wife and I do, yes.”); Main Case,

ECF No. 288 ¶ 1.1 (Plan).

21 Panache Ex. 324 ¶ 17.

22 Panache Ex. 324 ¶ 6.

23 The Binding Term Sheet also states that “Romspen, Zarafshani and Panache shall globally,

generally and specifically work together in good faith and with the utmost commercially

In reviewing this agreement, it is clear that all parties were aware of the

potential conflicts in their relationships—Romspen with a hand as both lender and

owner (in fact, controller of the owning entity); Mr. Zarafshani with roles as part

owner, as creditor, and as contractor. The Panache Parties essentially predicate their

whole case on the notion that Romspen abused its dual position and emphasizes the

scrupulousness required when conflicts are involved. Indeed, the Court agrees that

heightened scrutiny is required and accordingly considers their claims carefully

below. But the Court also notes that the conflicts must be viewed within the context

of an agreement freely entered into between sophisticated actors experienced not just

in construction generally but with knowledge of these particular parties. Further, the

Court notes that Mr. Zarafshani’s own conflicted position appears to have caused

problems of its own, as his motives as general contractor and closeness with certain

major subcontractors may have colored his actions and prevented him from

exercising the sort of scrutiny of expenditures and results that a shrewd owner and

contractor might have applied to a project like this.24 This is not to suggest that it’s

a tit-for-tat relationship or that breaches of duty should be excused; rather it is to

emphasize the context in which these sophisticated parties’ agreements were reached

and the respective discharge of their agreed-upon duties has to be viewed. Both

parties knew there were potential conflicts, and they were still willing to deal with

one another; though, of course, as the Court agrees, they each trusted the other to

handle the competing interests and potential conflicts fairly and in good faith.

The Binding Term Sheet subordinated all of Panache’s debt to all of

Romspen’s.25 A few months after the Debtor’s formation, Romspen agreed to

reasonable best efforts to consider, decide and implement any specific issues and/or requests

that arise in connection with the construction and development of the Construction Project

with such decisions made in the best interests of the Construction Project, Romspen, Panache

and Zarafshani, collectively and without exclusion to the respective interests of any

individual party. . . .” Panache Ex. 324 ¶ 11. This language, although less that totally clear,

perhaps indicates that the collective decision-making in the interest of the Project as a whole

could not and need not require complete disregard of the “the respective interests of an

individual party.” The Court’s point is merely intended to point out that the conflicted roles

of the parties have to be viewed in light of the agreements they all entered into voluntarily

and with significant awareness, and even (as the language above has it) “without exclusion

to the respective interests of any individual party,” which includes Romspen’s.

24 Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 42:20-21, 43:2-3

(Mr. Oelbaum’s testimony that in light of the close relationship between Mr. Zarafshani and

certain subcontractors, he began “to believe that Mr. Zarafshani was likely not acting in the

best interests of RIC (Austin) or Romspen”).

25 See Panache Ex. 324 ¶ 14, Ex. A.

provide up to $125 million in senior financing (the “Senior Loan”), which includes

the $45 million it credit bid to acquire the Project.26 AFMN Investments, LLC

(“AFMN”), another entity controlled by Mr. Zarafshani,27 also entered into a

promissory note with the Debtor for about $11.05 million, which memorialized the

Debtor’s assumption of the Panache deficiency claim from the Zen Garden Case (the

“Junior Loan”).28 Several years later, AFMN signed a subordination agreement (the

“Subordination Agreement” or “SIA”), which further elaborated on the general

capital structure it had agreed to in the Binding Term Sheet. In the Subordination

Agreement, AFMN agreed to subordinate its claim to Romspen’s claims, as agreed

by Romspen and Panache in the Binding Term Sheet, and to vote as directed by

Romspen on any plan filed if the Debtor ended up in bankruptcy, among other

things.29

Unfortunately, disputes between the parties re-emerged after the truce reached

in the prior bankruptcy case, culminating in Panache filing this involuntary petition

against RIC (Austin).30 After the RIC (Austin) involuntary petition was converted to

a voluntary petition under chapter 11,31 Peter Oelbaum, acting as Manager for

Reomaster, engaged Gregory S. Milligan with Harney Partners to serve as Chief

Restructuring Officer for the Debtor.32 To fund the case, Romspen provided the

Debtor with a post-petition debtor-in-possession loan (the “DIP Loan”), which has

administrative priority over secured claims.33

During the case, Romspen filed a $110,320,744 secured claim based on the

Senior Loan (“Romspen Loan Claim”) and a $99,665,917 secured claim based on

its deficiency claim from the Zen Garden Case (“Romspen Deficiency Claim”).34

26 Main Case, ECF No. 331 ¶ 10 (Brief in Support of Confirmation); Claim No. 6-3, Ex. A

(Romspen First Loan Agreement).

27 Adversary Proceeding, ECF No. 190, Trial Tr. (Day 3, April 24, 2026) at 14:11-12 (“Q And

you control AFMN, right? MR. ZARAFSHANI: I’m a manager for it, yes.”).

28 Main Case, ECF No. 331 ¶ 12 (Brief in Support of Confirmation); Panache Ex. 15 (AFMN

Promissory Note).

29 Panache Ex. 3 (Subordination and Intercreditor Agreement).

30 Main Case, ECF No. 1 (Involuntary Petition).

31 This case was originally converted to a small business case under subchapter V, but the

Debtor ultimately removed the subchapter V designation so this case is now a case under

chapter 11. Main Case, ECF No. 286 (Notice of Deselection of Subchapter V Designation).

32 Panache Exs. 502 (engagement letter), 503 (retention order).

33 Main Case, ECF Nos. 132, 143, 181, 200, 259 (Interim DIP Loan Orders). The final hearing

to consider the DIP Loan was heard along with confirmation and trial of the Adversary

Proceeding.

34 Claim Nos. 6-3, 7-3.

AMFN filed a $13,076,004 secured claim based on the Junior Loan (“AFMN Lien

Claim”) and Panache filed a $12,486,565 secured claim for its work on the Project

along with its attorney’s fees (“Panache Lien Claim”).35 Travis County also filed a

$901,780 secured claim against the property for 2025 property taxes.36 In addition,

as discussed in detail below, the four primary subcontractors for the Project, hired

by Panache and connected to Mr. Zarafshani in various ways, filed secured claims

for work they performed for the Project (“Primary Subcontractor Claims”).37 Other

smaller contractors also filed claims discussed below.

In November of 2024, Panache, AFMN, and Vesta Texas (the “Panache

Parties”) filed the Adversary Proceeding against Romspen and Reomaster (the

“Romspen Parties”).38 In the Adversary Proceeding, in an echo of its claims from

the Zen Garden Case, the Panache Parties ask the Court to equitably subordinate

Romspen’s claims or recharacterize the claims from debt to equity, and also

generally object to the claims.39 The Romspen Parties filed counterclaims against

AFMN, Panache, and Vesta Texas and also asserted third-party claims against Mr.

Zarafshani.40 Specifically, Romspen asserts a breach of contract claim against

AFMN and seeks specific performance of the Subordination Agreement and

damages.41 It also alleges that Panache, Vesta Texas, and Zarafshani tortiously

interfered with the Subordination Agreement and also seeks damages against all of

the Panache Parties for civil conspiracy.42

After a lengthy period of negotiation and litigation with the Panache Parties

in both the main case and Adversary Proceeding, the Debtor filed the current Plan

in February of 2026 and the Court set a hearing on confirmation, final approval of

the disclosure statement, and DIP Loan, and trial of the Adversary Proceeding.43 In

the Plan, the Debtor proposes to sell new membership interests in the Debtor to the

winner of an equity action and to use the proceeds to fund the Plan, provide one year

35 Claim Nos. 4-1, 5-1.

36 Claim No. 20-2.

37 Claim Nos. 8-2 (ACM), 11-1 (Austin CG), 14-1 (Summer Legacy), 9-2 (Texas Air).

Adversary Proceeding, ECF No. 189, Trial Tr. (Day 2, April 23, 2026) at 323:17-20 (“Let

me ask this a different way. Austin CG, Summer Legacy, Texas Air, and ACM were four of

the prime subcontractors on the project? MR. ZARAFSHANI: Yes.”).

38 Adversary Proceeding, ECF No. 1 (Original Complaint).

39 Adversary Proceeding, ECF No. 54-1 (Second Amended Complaint).

40 Adversary Proceeding, ECF No. 30 (Romspen Counterclaims and Third-Party Claims)

41 Adversary Proceeding, ECF No. 30.

42 Adversary Proceeding, ECF No. 30.

43 Main Case, ECF No. 288 (Plan); ECF No. 301 (Mar. 10, 2026 Scheduling Order).

of operating expenses for the reorganized debtor, as well as to settle the Primary

Subcontractor Claims upon certain conditions. 44 Reomaster, the only bidder,

subsequently won the equity auction with a $5.4 million stalking horse bid.45

Panache neither bid nor even accessed the virtual “data room” where the due

diligence documents were kept.46

Under the Plan, Class 1 consists of Romspen’s Loan Claim and provides that

it will be allowed in the total amount of approximately $114 million.47 Of that

44 Main Case, ECF No. 288, p. 1 (Plan) (“Under the Plan, new membership interests in the

Debtor shall be offered for sale pursuant to the Equity Auction. Reomaster or its affiliate

shall be the Stalking Horse Purchaser (with no bid protections) with an initial bid in the

amount of $5,400,000.00. The Equity Auction Proceeds shall provide for the payment of (i)

Administrative Expenses, (ii) the escrow necessary to fund the repayment of the Allowed

Travis County Secured Claim, (iii) one year of operating expenses of the Reorganized Debtor,

(iv) funding of any proposed Plan settlements, (v) a ninety percent (90%) dividend to Class

10, and (vi) at least $100,000.00 in residual Equity Auction Proceeds which shall be

distributed pro-rata to Allowed Unsecured Claims in Class 11. The Plan also provides for

unencumbered proceeds from the Causes of Action to be paid to Class 11 pro-rata upon

recovery.”).

45 Main Case, ECF No. 331 ¶ 25 (Brief in Support of Confirmation) (“No competing bidders

submitted Qualified Bids by the applicable deadline, and, accordingly, the Equity Auction

did not occur. As a result, the CRO identified Reomaster, the Stalking Horse Purchaser, as

the Successful Bidder pursuant to the terms of the Plan. The Stalking Horse Bid consists of

$5,400,000 in cash, which, together with remaining DIP availability and remaining cash on

hand of $600,000, will provide the Reorganized Debtor with total Plan funding of

approximately $6,000,000.”).

46 Adversary Proceeding, ECF No. 190, Trial Tr. (Day 3, April 24, 2026) at 51:11–25 (“None

of the Panache parties have accessed the debtor -- the debtor’s sale data room in connection

with the equity sale, have they? MR. ZARAFSHANI: No. We've seen the components of it,

yes. Q: How did you see the components of it? A: I went and downloaded the file from City

of Austin on your redevelopment plan, and we produced those files. Q: How do you know

that that's all that's in the develop -- in the data room? A: I reviewed your bank -- your

appraisal. Q: Do you know what the contents of the data room are, all of them? A: No. Q:

Because you didn't access it? A: No.”).

47 Main Case, ECF No. 288, p. 8 (Plan) (“Allowance. Subject to the Adversary Proceeding, as

and if appropriate, the RMLP First Lien Claim is Allowed in the amount of $114,185,038.21,

consisting of a Secured Claim in the amount of $34,500,000.00 less the DIP Claim and the

Allowed Travis County Secured Claim, or as otherwise determined by the Bankruptcy Court

at the Confirmation Hearing, and a deficiency Unsecured Claim in the amount of the RMLP

First Lien Claim less the Allowed Secured portion of the Claim. . . . Treatment. Subject to

the Adversary Proceeding, the RMLP First Lien Secured Claim shall be paid in full by the

Reorganized Debtor under the same terms and conditions as the promissory note forming the

basis of the RMLP First Lien Secured Claim, other than the maturity date thereunder, which

amount, $34.5 million (the current value of the Property) would be allowed as

secured, junior only to Romspen’s approximately $4.9 million administrative

expense claim for the DIP Loan and a partially allowed secured claim for Travis

County, which is treated in Class 5.48 Romspen also elected to apply 11 U.S.C.

§ 1111(b) to this claim, meaning that, notwithstanding the property’s value, its full

claim will retain its secured status to the extent the claim is allowed.49 Class 2

consists of the Romspen Deficiency Claim, which totals $99.7 million and will be

allowed as unsecured.50 Treatment of both of Romspen’s claims remains subject to

the Adversary Proceeding.51 These classes voted to accept the Plan.52

Classes 3 and 4 consist of the AFMN and Panache claims, which are treated

as unsecured because the current value of the property is insufficient to pay the more

senior secured claims in full.53 Thus, the AFMN and Panache’s claims, which they

filed as secured claims, would be treated (so far as they are ultimately allowed) as

unsecured claims.54 These impaired classes voted to reject the Plan, although

shall be modified and amended to December 31, 2028. Any deficiency shall be treated as an

Unsecured Claim.”).

48 Main Case, ECF No. 288, p. 8 (Plan). Notably, because Romspen made the election as was

its right under section 1111(b) of the Bankruptcy Code, ECF No. 122, the entirety of this

claim will be treated as secured and Romspen retains its lien until this claim is paid in full.

49 Main Case, ECF No. 122 (Notice of Election); 11 U.S.C. § 1111(b).

50 Main Case, ECF 288, p. 8 (Plan) (“Allowance. Subject to the Adversary Proceeding, the

RMLP Second Lien Claim is Allowed in the amount of $99,665,917.44. . . . Treatment.

Subject to the Adversary Proceeding, the RMLP Second Lien Claim shall be treated as an

Unsecured Claim.”).

51 Main Case, ECF 288, p. 8 (Plan).

52 Main Case, ECF No. 329 (Ballot Summary).

53 Main Case, ECF No. 288, p. 9 (Plan) (“Identification of Class. Class 3 consists of the AFMN

Third Lien Claim. b. No Allowance. Nothing in this Plan Allows the AFMN Third Lien

Claim. The Debtor reserves all rights to object to or otherwise contest the same, including on

account of any counterclaim, and all such rights are transferred to the Reorganized Debtor

under this Plan. c. Treatment. To the extent later Allowed, the AFMN Third Lien Claim shall

be treated as an Unsecured Claim. . . . Identification of Class. Class 4 consists of the Panache

Fourth Lien Claim. b. No Allowance. Nothing in this Plan allows the Panache Fourth Lien

Claim. The Debtor reserves all rights to object to or otherwise contest the same, including on

account of any counterclaim, and all such rights are transferred to the Reorganized Debtor

under this Plan. c. Treatment. To the extent later Allowed, the Panache Fourth Lien Claim

shall be treated as an Unsecured Claim.”)

54 Main Case, ECF 288, p. 9 (Plan); Claim Nos. 4-1, 5-1.

Romspen also filed a ballot on behalf of AFMN accepting the Plan based on

AFMN’s agreement to do so in the Subordination Agreement.55

For Class 5, the Plan proposes to pay Travis County $64,934 of its secured

claim in quarterly installments from the effective date through September 30, 2029

and makes provision for payment of the remaining disputed portion of the claim, to

the extent it is allowed, also by September 30, 2029.56 This impaired class voted to

accept the Plan.57

Classes 6–9 consist of the Primary Subcontractor Claims.58 Class 6 treats a

$267,720 claim filed by ACM Services, LLC (“ACM”).59 When it was initially filed,

55 Main Case, ECF No. 329, p. 2 n. 4 (Ballot Summary) (“Dueling ballots: AFMN Investments,

LLC rejects. Romspen Mortgage Limited Partnership, as alleged attorney-in fact for AFMN

Investments, LLC pursuant to the Subordination and Intercreditor Agreement, accepts.”).

56 Main Case, ECF 288, p. 9-10 (Plan) (“b. Partial Allowance. The Travis County Secured

Claim is Allowed in the amount of $64,934.04, plus any additional amount finally

determined to be valid pursuant to or in connection with the dispute between the Debtor and

Travis County, whether consensual or otherwise. . . . d. Treatment. The Allowed Travis

County Secured Claim shall be paid by the Reorganized Debtor’s funding into escrow of

quarterly, equal installments of the entire asserted amount, with statutory interest, beginning

on the Effective Date and calculated through September 30, 2029, until the end of the

calendar quarter following the final and unappealable resolution of the disputed portion

(“Segregated Funds”). …The Debtor shall complete payment of the Allowed Travis County

Secured Claim, in full, with statutory interest, by no later than September 30, 2029 …”).

57 Main Case, ECF No. 329 (Ballot Summary).

58 Claim Nos. 8-2 (ACM), 11-1 (Austin CG), 14-1 (Summer Legacy), 9-2 (Texas Air). Trial Tr.

(Day 2, April 23, 2026) at 323:17-20 (“Q So I appreciate that. Let me ask this a different

way. Austin CG, Summer Legacy, Texas Air, and ACM were four of the prime

subcontractors on the project? MR. ZARAFSHANI: Yes.”).

59 Main Case, ECF No. 288, p. 10-11 (Plan) (“No Allowance. Nothing in this Plan Allows the

ACM Secured Claim, save-and except for the election of subsection (d). The Debtor reserves

all rights to object to or otherwise contest the same, including on account of any counterclaim,

and all such rights are transferred to the Reorganized Debtor under this Plan. ... d. Optional

Allowance and Treatment. If Class 6 affirmatively elects this optional treatment on its Ballot

and accepts the Plan, then, in full and final satisfaction of the ACM Secured Claim against

the Estate, as well as in mutual release of any other Claims, Causes of Action, or Avoidance

Actions ACM and the Debtor may have against one another, on the Effective Date: (i) the

ACM Undisputed Secured Claim shall be Allowed in full, and ACM shall receive, on account

of such Allowed Claim, a distribution in the amount of ninety percent (90%) of the ACM

Undisputed Secured Claim, and (ii) the ACM Disputed Secured Claim shall be Allowed in

full, and ACM shall receive a distribution, on account of such Allowed Claim, in the amount

of seventy-five percent (75%) of such Allowed Claim, in full and final satisfaction of such

Allowed Claim. ...”); Claim No. 8-2.

the claim was asserted to be entirely secured and was signed by Mr. Zarafshani in

his capacity as president of Panache.60 It was later amended to claim $3,897 as

secured and the remaining amount unsecured and is signed by James Morris,

president of ACM.61 Class 7 consists of a $1,027,095 secured claim filed by Austin

CG Construction Services, Inc. (“Austin CG”) and is signed by Mr. Zarafshani in

his capacity as president of Panache. 62 Class 8 treats a $538,565 secured claim filed

by Summer Legacy, LLC (“Summer Legacy”) and is signed by Mr. Zarafshani in

his capacity as president of Panache.63 Class 9 consists of a $446,301 claim filed by

Texas Air Industries, Inc. (“Texas Air”) and is also signed by Mr. Zarafshani in his

capacity as president of Panache.64

Overall, the testimony and evidence suggest an extremely close relationship

between these four subcontractors and Mr. Zarafshani.65 In fact, Mr. Zarafshani set

up Austin CG and Summer Legacy in Texas when they began work on the Project,

and he formerly owned Summer Legacy.66 Mr. Zarafshani is also the authorized

signature on Summary Legacy’s bank account.67 Mr. Zarafshani testified that he

uses Summer Legacy for 100% of the framing, drywall, and roofing needs for all of

60 Claim No. 8-1.

61 Claim No. 8-2.

62 Main Case, ECF No. 288, p. 11 (Plan - similar treatment to ACM Secured Claim); Claim No.

11-1.

63 Main Case, ECF No. 288, p. 12 (Plan - similar treatment to ACM Secured Claim).

64 Main Case, ECF No. 288, p. 13 (Plan - similar treatment to ACM Secured Claim); Claim No.

16-1.

65 See e.g. Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 264:1-

265:20 (Mr. Milligan testifying about the closeness between Mr. Zarafshani and the Primary

Subcontractors).

66 Adversary Proceeding, ECF No. 189, Trial Tr. (Day 2, April 23, 2026) at 324:24-325:9 (“But

you brought [Austin AG and Summer Legacy] down here to help you do that 24 project?

MR. ZARAFSHANI: I invited them to come, yes. Q: And, in fact, you set their companies

up, correct? A: Yes. Q: Right. And you are the owner of Summer Legacy, right? A: When -

- yes, I was in 2015 or ‘16, I'm -- I think. Q: Right. You were the owner in name, and then

I believe I saw there was a document that transitioned the ownership in name from you to

Rafael Gutierrez, correct? A: Yes, that’s correct.”); Debtor Ex. 54 (Summer Legacy Articles

of Incorporation listed Mr. Zarafshani as sole manager).

67 Adversary Proceeding, ECF No. 189, Trial Tr. (Day 2, April 23, 2026) at 330:20-24 (“You’re

not an authorized -- you don't have access to their bank accounts? MR. ZARAFSHANI: No,

I’m the authorized signature on their bank accounts. Q You’re the authorized signature on

their bank accounts? A: Yes.”).

his projects.68 He also incorporated and served as the sole original director of Texas

Air; he testified that this was a mistake that was later corrected, but the Court did

not find this credible.69 Mr. Zarafshani testified that he has no control over these four

subcontractors, but the Court finds that this testimony was also not credible.70

In fact, the Court makes the general finding that Mr. Zarafshani’s testimony

was simply not credible. The Court does not at all doubt his good intentions, his

efforts, or his belief that this property has a lot of potential. But throughout his

examination, Mr. Zarafshani’s testimony was unconvincing, and it often

contradicted or stood in tension with credible evidence and testimony from other

witnesses. For example, his extreme closeness with a number of the contractors on

the property is unusual and raises concerns that they were not being supervised or

paid on commercially responsible terms. His testimony did not dispel these

suspicions. In his deposition, Mr. Zarafshani testified that he had no written logs of

the subcontractor’s work.71 At trial, he testified that he kept notebooks recording

work performed by the subcontractors but that he destroyed the notebooks so there

is no record of the work performed.72 And the only other employee of Panache and

its chief financial officer, Ms. Woodham, was apparently not aware of any time logs

68 Adversary Proceeding, ECF No. 190, Trial Tr. (Day 3, April 24, 2026) at 32:15-22 (“Q How

do you decide whether Summer Legacy is the best provider to do that work on any particular

Panache project? A Depending on the project and the scope of work. They are commercial

contractors. They’re union trained. So for -- I use them 100 percent of the time for framing,

100 percent of the time for drywall, 100 percent of the time for roofing. And if there are

other things the job requires, we evaluate it based on the need of the job.”)

69 Debtor Exs. 61, 63 (Texas Air Certificate of Formation); Adversary Proceeding, ECF No.

190, Trial Tr. (Day 3, April 24, 2026) at 33:18-20; 34:1-34:2 (“Q So they put you on as the

owner, and that was a mistake? That’s what you just said? MR. ZARAFSHANI: Yes, that’s

exactly what I said.”).

70 See e.g. Adversary Proceeding, ECF No. 189, Trial Tr. (Day 2, April 23, 2026) at 330:18-19

(“And so you have no control over Summer Legacy? MR. ZARAFSHANI: Oh, god, no. I -

- I wish I could, but no.”).

71 Adversary Proceeding, ECF No. 190, Trial Tr. (Day 3, April 23, 2026) at 82:15-25.

72 Adversary Proceeding, ECF No. 189, Trial Tr. (Day 2, April 23, 2026) at 329:9-22 (“So let

me -- so if -- so now you're telling me that there were logs that you kept and signed off on

every day? MR. ZARAFSHANI: No, I kept them weekly. Q: There were weekly logs? A:

Yes, I wrote them on my -- Q: Sorry, go ahead. A: I kept track of who did what on my

notebook, and once the -- the invoices were turned in and it matched, that was the end of it.

Q: So you verified how many men and how many hours were -- of work were performed by

the subcontractors Austin CG and Summer Legacy every week? Is that what your testimony

is? A: Every day, every week. Q: And you got the -- and you have those logs? A: No. Q: All

right. Did you throw them away? A: I had them on weekly basis. When I got the invoices, I

didn't keep the paper.”).

of the subcontractors.73 To take another example, it seems that Mr. Zarafshani had

video recordings from meetings at the Project dating back to the Zen Garden Case,

but he claimed to be unable to produce any such video files for the Project during

the RIC (Austin) era, claiming without reasonable explanation that the video

recorded over itself only during this time period, such that he was not able to produce

them to Romspen in discovery.74 In addition, his testimony concerning the land he

cleared of trees, which drew criminal action from the City of Austin, was not

credible.75 These are merely a few examples. But they relate to the broader question

of who is to blame for the fact that the Project was such a failure: Was it Romspen

for not funding even more than it did, or was it Mr. Zarafshani’s team for not being

capable? Ultimately, the Court believes that the evidence strongly favored the notion

that Mr. Zarafshani’s organization was simply not up to the task of completing this

serious, massive project, and that is the reason that it failed despite the dramatic

amounts of money spent on it. The Court did not find Mr. Zarafshani’s efforts to

shift the blame to be credible.

73 Adversary Proceeding, ECF No. 187, Trial Tr. (Day 1, April 22, 2026) at 141:8-25 (“And

you aren’t aware of any written logs that documented the time that labors for -- laborers for

a particular sub actually spent onsite on any given day, right? MS. WOODHAM: I’m not

aware of those records. Q: Right. Panache didn’t keep any time logs, right? A: Panache did

not. Q: And the subs weren't required to keep time logs either, were they? A: I do not -- I

cannot speak to that. Q: Well, you never asked them to submit it, did you? A: I personally

did not. Q: That was not something you considered in your quality control role when you

were submitting draw requests to RMLP, right? A: No. Q: So the only confirmation that the

work was performed was based on photographs and Mr. Zarafshani’s observations, right? A:

That’s correct.”).

74 Adversary Proceeding, ECF No. 190, Trial Tr. (Day 3, April 24, 2026) at 85:8-24 (“Do you

recall searching through your video files of recorded meetings when you were talking with

Mr. Milligan in an effort to show him one of the videos when you were talking with him

back during the Zen Garden phase? MR. ZARAFSHANI: Mr. Milligan came to our office.

I displayed the meeting with -- Q: Mm-hmm. A: -- for him, and he watched it. Q: And do

you recall searching through your video files to find that meeting? A: We went through the

DVD recorder and fast-forward and backwards, yes. Q: You do have video files of recorded

meetings in connection with the project? A: It’s an ongoing recording, and it replaces itself,

yes. Q: Has it been produced to us, sir? A: I -- I don’t have it anymore, no.”).

75 Mr. Zarafshani maintained that damaged trees were removed “throughout the campus” due

to damage from Winter Storm Uri but then conceded that the tree removal was actually to

make an industrial park for Austin Energy; his testimony as to this tree-clearing was just

unconvincing and was very effectively undermined by cross-examination. See, e.g.,

Adversary Proceeding, ECF No. 190, Trial Tr. (Day 3, April 24, 2026) at 76:22–77:4; 80:18–

81:3; 126:12-127:4.

According to Mr. Zarafshani, the contractors behind the Primary

Subcontractor Claims could not carry large account receivable balances and so had

to be paid weekly during this constructions.76 These financially strapped contractors

were given the option of voting in favor of the Plan and receiving payment of 90%

of their undisputed claims and 75% of their disputed claims or voting against the

plan and litigating allowance of their claims.77 Notwithstanding what is essentially

a favorable settlement offer for speedy and guaranteed payment of the supermajority

of their claims, these four impaired creditors, like AFMN and Panache, voted to

reject the Plan and continue litigating their claims, and likely incurring even more

legal fees, which strongly suggests some influence from Mr. Zarafshani despite his

denial of having spoken with them.78

Class 10 is an administrative convenience class that consists of nine unsecured

claims that total less than $25,000.79 The Plan allows the claims and provides that

they will be paid 90% of their claims within five days of the effective date.80 This

impaired class voted in favor of the Plan.81

The final class of claims, Class 11, which consists of unsecured claims that

total more than $25,000, would share pro-rata from the remaining equity auction

proceeds of at least $100,000, as well as any net proceeds from unencumbered estate

causes of action, if any.82 This class includes the allowed $99.6 million Romspen

Deficiency Claim (subject to the Adversary Proceeding) and the AFMN and Panache

76 Adversary Proceeding, ECF No. 188, Trial Tr. (Day 2, April 23, 2026) at 327:2-18 (“Q All

right. The weekly payments are in the binding term sheet? MR. ZARAFSHANI: No, their

rate. They would come back at the same rate they were getting – Q: Okay. -- paid before.

But that was all predicated on the agreement back in the Zen Garden days that you would

bring them -- that you were going to pay them weekly and you would get a lower rate. And

I believe Ms. Woodham said yesterday that was a win-win for everybody, right? A: I think

what I heard Ms. Woodham say, and I agree with what she said, was that they were smaller

companies and they couldn't carry large amounts of receivables, so we paid them weekly or

bi-weekly to -- but you get cheaper rates that way because you end up -- they don't have to

finance their own work.”); Adversary Proceeding, ECF No. 190, Trial Tr. (Day 3, April 24,

2026) at 41:23-42:1 (“You don’t know why the subcontractors who you’ve testified can’t

carry large accounts receivable balances would turn down a 90 percent payout under the

plan? MR. ZARAFSHANI: I have not spoken to them about the plan.”).

77 Main Case, ECF No. 288, p. 10-13 (Plan).

78 Main Case, ECF No. 329 (Ballot Summary).

79 Claim Nos. 1-1, 9-1, 10-1, 12-1, 13-1, 15-1, 17-1, 18-1, 19-1.

80 Main Case, ECF No. 288, p. 14 (Plan).

81 Main Case, ECF No. 329 (Ballot Summary).

82 Main Case, ECF No. 288, p. 14 (Plan).

claims, to the extent they are allowed.83 The only Class 11 creditors to vote were

ACM, AFMN, and Panache who all voted to reject the Plan.84

Analysis

To obtain confirmation of a plan of reorganization, a debtor must prove that

the plan complies with the requirements of 11 U.S.C. § 1129 by a preponderance of

the evidence.85 These requirements include that the plan is “proposed in good faith

and not by any means forbidden by law,”86 that at least one class of non-insider

impaired claims accepts the plan,87 and that the plan does not “discriminate unfairly”

and is “fair and equitable” as to any objecting class of creditors.88 The Panache

Parties contend that the Plan does not meet these requirements and so confirmation

should be denied.89 The Court will discuss only some of the arguments that have

been raised, although its finding is that all elements have been met.

I. The Plan meets the statutory requirements and should be confirmed.

A. Good faith

The Panache Parties argue that the Plan was not filed in good faith because

the Debtor has been unduly influenced by the Romspen Parties, who are insiders,

83 Main Case, ECF No. 288, p. 14 (Plan) (“a. Identification of Class. Class 11 consists of

Unsecured Claims which are equal to or exceed $25,000.00 in amount. . . . c. Treatment.

Class 11 Claims shall be paid pro-rata from the residual Equity Auction Proceeds which shall

be at least $100,000.00, as well as any net proceeds of unencumbered Causes of Action, if

any. The Debtor reserves all rights to object to or otherwise contest any Unsecured Claim,

including on account of any counterclaim, and all such rights are transferred to the

Reorganized Debtor under this Plan.”), p. 8-9 (“b. Allowance. Subject to the Adversary

Proceeding, the RMLP Second Lien Claim is Allowed in the amount of $99,665,917.44. c.

Treatment. Subject to the Adversary Proceeding, the RMLP Second Lien Claim shall be

treated as an Unsecured Claim.”), p. 9 (“c. Treatment. To the extent later Allowed, the AFMN

Third Lien Claim shall be treated as an Unsecured Claim.”), p. 9 (“c. Treatment. To the extent

later Allowed, the Panache Fourth Lien Claim shall be treated as an Unsecured Claim.”).

84 Main Case, ECF No. 329 (Ballot Summary).

85 11 U.S.C. § 1129; In re Briscoe Enters., Ltd. II, 994 F.2d 1160, 1165 (5th Cir. 1993); In re

Cypresswood Land Partners, I, 409 B.R. 396, 422 (Bankr. S.D. Tex. 2009); In re J T Thorpe

Co., 308 B.R. 782, 785 (Bankr. S.D. Tex. 2003).

86 11 U.S.C. § 1129(a)(3).

87 11 U.S.C. § 1129(a)(10).

88 11 U.S.C. § 1129(b).

89 Main Case, ECF No. 383 ¶ 2 (Panache Parties’ Post-Trial Brief in Opposition to

Confirmation).

and the Plan is designed to shield them from estate causes of action, rather than

maximize estate assets.90 Specifically, they contend that because Reomaster, an

affiliate of Romspen, won the equity auction—after a self-serving and ineffective

marketing effort—the estate causes of action against the Romspen Parties will not

be pursued, effectively releasing the Romspen Parties from liability.91

Courts evaluate whether a plan is proposed in good faith based on the totality

of the circumstances related to creation of the plan.92 “Where the plan is proposed

with the legitimate and honest purpose to reorganize and has a reasonable hope of

success, the good faith requirement of section 1129(a)(3) is satisfied.”93 Some

factors courts consider when evaluating good faith are “(1) whether the proposed

plan promotes a result consistent with the Bankruptcy Code’s objectives; (2) whether

the proposed plan has been proposed with honesty and good intentions and with a

basis for expecting that reorganization can be effected; and (3) whether the debtor

exhibited fundamental fairness when dealing with its creditors.”94

As to the first factor, the Plan appears to be an effort to reorganize the Debtor’s

debt and provide a path for moving forward with the Project. The Plan provided for

an equity auction designed infuse new money into the estate so the Debtor could pay

creditors and continue developing the property. According to the evidence and

testimony presented at trial, the Project was actively marketed to thousands of parties

for two months and had been toured by hundreds of sophisticated parties over a

period of years.95 Specifically, Mr. Milligan credibly testified that during their

marketing efforts, the Debtor contacted the top 20 commercial real estate brokers

and top 20 commercial real estate developers with calls, emails, and a marketing

teaser.96 Separately, the Debtor also listed the equity auction on two national

90 Main Case, ECF No. 383 ¶¶ 3-7 (Panache Parties’ Post-Trial Brief in Opposition to

Confirmation).

91 Main Case, ECF No. 383 ¶ 5 (Panache Parties’ Post-Trial Brief in Opposition to

Confirmation).

92 B.M. Brite v. Sun County Development, Inc. (In re Sun County Development, Inc.), 764 F.2d

406, 408 (5th Cir. 1985).

93 Id.; Double H Transportation LLC v. Odell (In re Double H Transportation LLC), 603

F.Supp. 3d 468, 477 (W.D. Tex. 2022).

94 In re Trinity Family Practice & Urgent Care PLLC, 661 B.R. 793, 813 (Bankr. W.D. Tex.

2024) (citing In re W.R. Grace & Co., 475 B.R. 34, 87-88 (D. Del. 2012)).

95 Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 250:17-25-255:19.

96 Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 250:17-25 (“[W]e

used the 2025 Austin Business Journal list of the top 20 commercial real estate brokers and

top 20 commercial real estate developers in Austin. They each, all 40, got a phone call, an

bankruptcy sale platforms that each have thousands of subscribers.97 In general, Mr.

Milligan’s testimony concerning both marketing, good faith, and other points was

highly credible.

The Panache Parties point to one marketing email and attached teaser as

evidence that the property was not properly marketed because it stated that the

Project was subject to $200 million in liens and claims, which would not be true

post-confirmation, and included a paragraph in some versions that stated “We

understand this is an unusual value proposition, but we must satisfy the court that

we’ve conducted a robust marketing process, so I have attached the Teaser that

contains further info in case you or someone you know might be interested.”98 While

this email and teaser could have been better articulated, it is generally reflected the

Project’s current lien and claim status.99 It is also unclear whether this version of the

email was widely circulated.100

The Court notes that the Panache Parties’ argument on this issue was

overstated at best and disingenuous at worst, since given the § 1111(b) election that

has been exercised by Romspen,101 the ongoing lien on the property is more than

email, and a copy of the teaser. We also used a couple of widely used national bankruptcy

sale platforms, one being the DailyDAC based out of Chicago that I think has a subscriber

base north of 10,000. And Inforuptcy, they don’t publish their subscriber base, but I think

there’s public information that they had listed more than 8,000 assets for sale last year.”);

Debtor Ex. 17 (marketing outreach list).

97 Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 250:17-251-5 (“We

also used a couple of widely used national bankruptcy sale platforms, one being the

DailyDAC based out of Chicago that I think has a subscriber base north of 10,000. And

Inforuptcy, they don’t publish their subscriber base, but I think there’s public information

that they had listed more than 8,000 assets for sale last year.”).

98 Panache Ex. 514.

99 See generally Claim Register; Main Case, ECF No. 288 (Plan).

100 Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 253:11-24 (“So

focusing on this email, in looking at this last few days, particularly this last paragraph, is it

also the case that there were versions of this email that went out to a group out of that 40 that

actually has different language at the bottom? MR. MILLIGAN: Correct. We figured this

out, I think, yesterday, that there were versions of this solicitation that did not include the

last paragraph. Q: Okay. And that’s kind of important just -- I mean, I think the Court was

even maybe poking fun that it wasn't the best language in that last paragraph, but it's the case

that there are emails that went out without that, correct? A: That – that’s why it stuck out

when we saw one that didn’t have that last paragraph.”).

101 Main Case ECF No. 122 (Notice of Election); ECF No. 386 ¶ 10 (Debtor’s Post-Trial Reply

Brief).

$100 million, much more than the currently estimated value of the property.102 In

any case, based on the evidence presented, the Court finds that the equity auction

was appropriately marketed. It is too bad that no other bidders materialized; but Mr.

Milligan is experienced, trustworthy, and energetic. It is not his fault that he could

not spin gold from straw.

Additionally, if they thought the auction undervalued the Property, the

Panache Parties were free to participate in the auction, or to find buyers to do so, and

were well-positioned to do so; given Mr. Zarafshani’s deep knowledge of the

Property and well-attested gift for marketing, he could no doubt have marketed the

Property as effectively as anyone else and obviously had motivation to do so. He

claimed at trial to have “shown the property 539 times” over the years.103 In fact,

although he seemed to deny it (not credibly), there are some indications in the record

that he did undertake marketing efforts during the bankruptcy.104 Had the Panache

Parties won the auction or helped another party do so, they could have potentially

gained control of the Debtor and pursued claims against the Romspen Parties. They

did not.

Because the Debtor is insolvent and is currently without a revenue source, the

only hope for getting payments to existing creditors and moving forward with the

Project was from an influx of new money, which the Reomaster bid provides. The

Court asked the Panache Parties multiple times during this bankruptcy case whether

they would fund the case, and they declined. In the absence of funds from another

source, the Debtor reasonably accepted Reomaster’s bid so that it could move

forward with reorganizing before its DIP facility ran out. The likely outcome of the

auction is that claims against the Romspen Parties will not be pursued, but that

outcome does not mean the Plan was filed in bad faith nor that this outcome was

fore-ordained; it was a product of events, including an auction. The Plan provides a

path for the Debtor to pay its creditors and move this troubled Project forward so

that it can finish construction and begin leasing space and earning income. This

result is obviously consistent with the Bankruptcy Code’s objectives and so the

Court finds that the first factor is easily met.

102 Main Case, ECF No. 383 ¶ 19 (Panache Parties’ Post-Trial Brief in Opposition to

Confirmation - “Contrary to those assertions, the Reorganized Debtor will not be subject to

existing claims and liens beyond $32.8 million valuation of the property because all junior

debt will be discharged.”).

103 Adversary Proceeding, ECF No. 190, Trial Tr. (Day 3, April 24, 2026) at 287:9.

104 Adversary Proceeding, ECF No. 190, Trial Tr. (Day 3, April 24, 2026) at pages 53-54, 60.

For the second factor, the evidence suggests that the Debtor’s Chief

Restructuring Officer, Mr. Milligan, attempted to negotiate with the Panache Parties

on a consensual plan structure and only proposed this Plan after those negotiations

failed.105 Even so, the structure of the Plan as an equity auction gave the Panache

Parties a way to take control of the Project if they desired, but the Panache Parties

chose not to participate in the auction. As discussed, this Debtor needed an influx of

cash to reorganize and move forward. The Panache Parties decided not to participate

in that process. Even at the very end of trial, after evidence had closed and the Court

was hearing argument, the Panache Parties’ bankruptcy counsel vaguely claimed his

clients had an offer on the table to take this case in an alternative direction.106 The

Court fails to see how this “too little too late” quasi-offer could have mattered in any

case, but it seems to have been nothing more than vapor; there was never any filing

on record about it and it has not been mentioned in their briefing. The point is that

the Panache Parties had ample chances to take this case in a different direction.

The Plan also appropriately made the treatment of Romspen’s claims

contingent on the outcome of the Adversary Proceeding.107 Given the circumstances

105 Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 242:3-9 (“And

what was the response to that? The Panache parties would not mediate on plan terms. And is

that sort of the only reason why you pivoted to a nonconsensual plan? MR. MILLIGAN:

Yeah, at that point, I mean, it was clear. We had tried a couple of different ways and offered

mediation, and it wasn’t going to happen, and you could see the -- the runway ending with

the available cash. And so we had to pivot.”).

106 Adversary Proceeding, ECF No. 192, Trial Tr. (Day 5, April 28, 2026) 164:5-20 (“MR.

GAITHER: It’s a nice segue, Your Honor, because I stood at this podium in opening and

said it's my hope to be able to make an alternative proposal, and as of 12:28 this afternoon, I

was very concerned that I was not going to be able to tell the Court that I had an alternative

proposal. I will tell the Court now that as of our lunch break, we received an alternate take

out DIP proposal, which we've shared with Mr. Berghman and Mr. Milligan. Obviously,

we’re here on confirmation today. The point of that take out DIP would be to position this

estate to fund the operations, take out the existing DIP, fund the maintenance of the property,

pending the Court's ruling in the adversary, of course, and then with respect -- with the benefit

of that ruling, perhaps propose an alternative plan. I don't have an alternative plan that I can

give Your Honor today, but that's -- that is our alternative proposal.”).

107 Main Case, ECF No. 288, p. 8 (Plan - “Allowance. Subject to the Adversary Proceeding, as

and if appropriate, the RMLP First Lien Claim is Allowed in the amount of $114,185,038.21,

consisting of a Secured Claim in the amount of $34,500,000.00 less the DIP Claim and the

Allowed Travis County Secured Claim, or as otherwise determined by the Bankruptcy Court

at the Confirmation Hearing, and a deficiency Unsecured Claim in the amount of the RMLP

First Lien Claim less the Allowed Secured portion of the Claim. . . .”); (Plan - “Allowance.

Subject to the Adversary Proceeding, the RMLP Second Lien Claim is Allowed in the

of this case, where the parties blame each other for the Project’s failure, the Court

finds that the Plan was proposed with honesty and good intentions so that a

reorganization could proceed while the results of the Adversary Proceeding were

unknown. Delay was not a possibility; there was no funding—including from the

Panache Parties, who wanted delay but did not want to pay for it.

Relatedly, as to the third factor, again, the testimony indicated that Mr.

Milligan attempted to negotiate with the Panache Parties, the Plan gave the Panache

Parties an opportunity to gain control of the Debtor, and the Plan pays administrative

class claimants 90% of their claims and gave the secured creditors who are connected

to Mr. Zarafshani an opportunity to vote in favor of the Plan and also receive 75-

90% payment of their claims (even the contested portions of them). The Court finds

that this treatment is fundamentally fair under the facts of this case.

Thus, the Court finds that the Plan was proposed in good faith as required by

11 U.S.C. 1129(a)(3).

B. Impaired Accepting Classes

Subsection (a)(10) mandates that at least one impaired class of creditors

accept a plan of reorganization, which must be determined without counting insider

creditor votes.108 A claim is impaired unless the plan “leaves unaltered the legal,

equitable, and contractual rights to which such claim or interest entitles the holder

of such claim or interests.”109

The Panache Parties also contend that the Plan cannot be confirmed because

it lacks an impaired accepting class.110 Even though classes 5 and 10 voted in favor

of the plan, they argue that those classes are improperly classified and artificially

impaired and therefore cannot fulfill this statutory requirement.111

amount of $99,665,917.44. . . . Treatment. Subject to the Adversary Proceeding, the RMLP

Second Lien Claim shall be treated as an Unsecured Claim.”).

108 11 U.S.C. § 1129(a) (“The court shall confirm a plan only if all of the following requirements

are met . . . (10) [i]f a class of claims is impaired under the plan, at least one class of claims

that is impaired under the plan has accepted the plan, determined without including any

acceptance of the plan by any insider.”).

109 11 U.S.C. § 1124(a)(1).

110 Main Case, ECF No. 383 ¶¶ 8-15 (Panache Parties’ Post-Trial Brief in Opposition to

Confirmation).

111 Main Case, ECF No. 383 ¶ 8 (Panache Parties’ Post-Trial Brief in Opposition to

Confirmation).

1. Class 5 – Travis County Secured Claim

Governing law is not clear on whether secured tax claims can constitute an

impaired accepting class. The analysis requires some background.

Unsecured tax claims are entitled to special treatment in plans of

reorganization. Under § 1129(a)(9)(C) of the Bankruptcy Code, unless the claimant

agrees to different treatment, a claimant whose claim arises under § 507(a)(8) must

receive regular installment payments that equal the amount of the claim, over a

period of five years or less, and in a manner that is “not less favorable than the most

favored nonpriority unsecured claim provided for by the plan.”112 Unsecured tax

claimants—holders of “allowed unsecured claims of governmental units”—receive

this § 507(a)(8) status (with certain exceptions) and thus are entitled to the treatment

specified in § 1129(a)(9)(C).

But the widely accepted rule is that unsecured tax claims, even if impaired

(i.e., receiving worse treatment than it would be entitled to under the Code), are not

classified under the Code because they are specifically excluded from the classes of

claims that plans are required to designate: § 1123(a) states that a plan shall

“designate ... classes of claims, other than claims of a kind specified in

... § 507(a)(8) of this title.”113 Because of this lack of being in a “class,” holders of

such claims cannot, of course, fulfill the statutory requirement of an impaired

accepting class.114 This chain of logic follows directly from, and adheres closely to,

the text of the Code, and to this Court it seems plainly correct.

The Code contains no such prohibition on the classification of secured tax

claims. Nonetheless, some courts have been persuaded that they should not be able

to serve as impaired accepting classes.115 This approach has some appeal, because

the Code does say that a secured tax claim must be paid in the same manner as

unsecured tax claim if, but for the security interest, the claim is entitled to receive

the same treatment as a priority unsecured tax claim. In specific, § 1129(a)(9)(D)

provides that “with respect to a secured claim which would otherwise meet the

description of an unsecured claim of a governmental unit under section 507(a)(8),

112 11 U.S.C. § 1129(a)(9)(C). Unsecured tax claims are among those claims entitled to payment

under § 507(a)(8) and therefore within the scope of this section.

113 11 U.S.C. § 1123(a)(1) (emphasis added).

114 11 U.S.C. § 1129(a)(10) (“If a class of claims is impaired under the plan, at least one class

of claims that is impaired under the plan has accepted the plan . . . .”) (emphasis added).

115 See, e.g., In re Mangia Pizza Invs., LP, 480 B.R. 669, 677-79 (Bankr. W.D. Tex. 2012).

but for the secured status of that claim, the holder of that claim will receive on

account of that claim, cash payments, in the same manner and over the same period,

as prescribed in subparagraph (C).116

But note that neither § 1123(a) nor any other section states that both “claims

of a kind specified in ... § 507(a)(8) of this title” and other claims entitled to the

same treatment as those claims are excluded from classification. In other words, the

text of the Code itself provides no reason to exclude secured tax claims from

classification. Indeed, the clear statement about the (non-)classification of unsecured

tax claims might suggest that the omission of secured tax claims from § 1123(a)’s

classification rules is meaningful.

But courts have not all agreed with this analysis. In Mangia Pizza Investments,

LP, a bankruptcy court in this district found that tax claims given the treatment

available under 1129(a)(9)(C) are not entitled to vote even if impaired (i.e., given

worse treatment under the plan than what they would be entitled to under the statute)

because they cannot be “classified for purposes of voting and cram down.”117 The

justification for this holding is not based on the text so much as a sense of (a) the

analogy to unsecured tax creditors, mentioned above118; and (b) a sense of inequity

toward other creditors if secured tax creditors were able to “bind” them by being the

impaired accepting class in a plan. The second point is best articulated thus: “[G]iven

the express statutory treatment afforded tax claims, tax claims should not be given

the ability to vote if the taxing authority accepts treatment less than that allowed

under section 1129(a)(9)(C) and (D). In doing so, creditors who are not given

statutory rights will not have their votes diluted.”119 But various other creditors’s

claims are also “given statutory rights” in the Bankruptcy Code. With the greatest

respect for this thoughtful opinion, the Court does not ultimately find this reasoning

persuasive. The Court is not convinced it is empowered to decide when prescribed

statutory treatment is sufficiently special that creditors should not be able to serve as

an impaired accepting class.

116 11 U.S.C. § 1129(a)(9)(D).

117 480 B.R. 669, 677-79 (Bankr. W.D. Tex. 2012). The only circuit point opinion that comes

close to addressing this issue is the Fourth Circuit in a short footnote, but despite the general

language used (“tax claimants”), it appears that the claimant in question held an unsecured

claim and is thus likely distinguishable from the ruling here. See In re Bryson Properties,

XVIII, 961 F.2d 496, 501 n. 8 (4th Cir. 1992).

118 Mangia, 480 B.R. at 678 (“Because § 1129(a)(9)(D) requires that secured tax claims be given

the same treatment as all other priority tax claims, there is a strong argument to be made that

such claims should be treated equally when it comes to purposes of voting and cram down.”).

119 Mangia, 480 B.R. at 678-79.

In sum, this Court believes that the text is clear and should be followed: A

class consisting of a holder of a secured tax claim who accepts a plan in which it is

given worse treatment than that to which it is statutorily entitled qualifies as an

impaired accepting class. While it seems clear that unsecured tax creditors, even if

impaired, cannot serve as the statutorily required accepting class, the Court believes

that secured tax creditors can.

Here, the Plan provides for treatment of the Travis County claim over a period

longer than the statutory five-year period in subsection (a)(9)(C). It also incorporates

a process for reserving funds on disputed amounts while the parties continue

litigation over the disputed amounts and gives the reorganized debtor discretion in

the timing of installment payments. This treatment certainly impairs Travis County’s

rights, and it nonetheless decided to accept the Plan. Travis County qualifies as an

impaired accepting class.

2. Class 10 – Administrative Convenience Class

Even if the Travis County vote cannot be considered, Class 10, another

impaired class, voted to accept the Plan.120 However, the Panache Parties argue that

this class was both gerrymandered and artificially impaired.121

When classifying claims, debtors may propose a plan that places “a claim or

an interest in a particular class only if such claim or interest is substantially similar

to other claims or interests in such class.”122 A plan may also “designate a separate

class of claims consisting only of every unsecured claim that is less than or reduced

to an amount that the court approves as reasonable and necessary for administrative

convenience.”123

From the testimony at trial, it seems clear that the Debtor chose to classify

these claims separately for two independently sufficient and compelling reasons: (1)

because of their small amounts compared to the other unsecured claims and (2)

120 Main Case, ECF No. 329, p. 3 (Ballot Summary - summary chart), Ex. A, p. 16-17 (Class 10

ballots).

121 Main Case, ECF No. 383 ¶¶ 12-15 (Panache Parties’ Post-Trial Brief in Opposition to

Confirmation). As all parties recognize, in the Fifth Circuit, “artificial impairment” is not an

independent issue, it sounds in good faith (and does not suffice in itself to support a finding

of bad faith). See generally In re Village at Camp Bowie, L.P., 710 F.3d 289 (5th Cir. 2013).

122 11 U.S.C. § 1122(a).

123 11 U.S.C. § 1122(b).

because these claimants are true arms-length creditors, unlike the creditors in Classes

6–9 who appear to be deeply connected to Mr. Zarafshani. In other words, as Mr.

Milligan put it, the Class 10 creditors are creditors who “don’t have a dog in this

fight.”124 During the trial, Mr. Milligan testified that the Debtor classified the Class

10 claims separately to pay them right away—rather than over time like the other

unsecured claims—so that it could focus on the more complicated litigation

involving the Panache Parties and the subcontractors who have much larger

unsecured claims and whose extremely deep connections with Mr. Zarafshani raise

certain suspicions about both their behavior in this case and potentially about the

underlying validity of their claims.125

Under the facts of this case, the Court finds that this classification is both

reasonable and necessary. The decision is an easy one. Either of the two credibly

offered reasons above would suffice to support the separate classification of these

claims. If the claimants in Classes 6–9 had voted in Class 10, their claims would

have swamped the votes of the actual Class 10 creditors and some of the only truly

arms-length creditors in this case would have been silenced.

In its post-trial brief, Panache also argues that the Debtor has sufficient

liquidity to pay the claims in Class 10 in full and that it artificially impaired their

claims by only paying 90%.126 Mr. Milligan contends that it reduced payment to this

class to 90% of their claims to recognize that these claimants would be paid right

124 Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 260:24-25 (“I mean,

those are the kids who don’t have a dog in this fight.”).

125 Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 261:11-262:11 (“Q

Okay. And why pay the convenience class 90 cents on the dollar? MR. MILLIGAN: I mean,

A, because they’re getting payment sooner. Because if they had to ride along until, you know,

this -- the retained claims are litigated, et cetera, it would be, you know, years. And it’s

common, very common for folks to take a discount for early payment. And it also lined up

and was consistent with the offer that we made to the subcontractors to pay 90 percent of

their scheduled claims. Q And you heard in opening that the Panache parties believe the

debtor has got enough money to pay all these people in full. What’s your response to that?

A Well, I mean, they do. It’s spending somebody else’s money. We have unknowns about

what the future liabilities are going to be. We have more than $26,000 of cash now since the

subs didn't take those offers. But we’ve got the unknown with respect to the City of Austin

litigation on the industrial site, what that’s going to turn into. You know, there are other

contingencies. We still don't know what the fix and resolution is on the -- on the, this deal.

So there’s still, you know, lots of open variables.”).

126 Main Case, ECF No. 383 ¶ 14 (Panache Parties’ Post-Trial Brief in Opposition to

Confirmation).

away, rather than over time, to reflect the time-value of money.127 He recognized

that the Debtor has more than $26,000 in cash, but also said that paying the claims

in full would be “spending somebody else’s money” because of unknown future

liabilities, like litigation with the City of Austin, and because whatever cash is

available on the other side of confirmation would be impaired by a $100 million

secured claim.128

Under the facts of this case, where the largest creditors are either affiliated

with each other or appear to have loyalty to one side or the other, the Debtor’s

separate classification of true third-party creditors is reasonable and necessary to

prevent those creditors from being swamped by the other parties. As an

independently sufficient reason to approve the classification, these claims are also

significantly different in size and type from the other claims and the administrative

convenience test is met.

For these reasons, the Court finds that the Plan meets the requirements of 11

U.S.C. § 1129(a)(10).

C. Cramdown

When a class objects to a plan, courts will still confirm the plan

notwithstanding the objection, if “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.”129

127 Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 261:11-262:11

(“And why pay the convenience class 90 cents on the dollar? MR. MILLIGAN: I mean, A,

because they’re getting payment sooner. Because if they had to ride along until, you know,

this -- the retained claims are litigated, et cetera, it would be, you know, years. And it’s

common, very common for folks to take a discount for early payment. And it also lined up

and was consistent with the offer that we made to the subcontractors to pay 90 percent of

their scheduled claims. Q: And you heard in opening that the Panache parties believe the

debtor has got enough money to pay all these people in full. What’s your response to that?

A: Well, I mean, they do. It’s spending somebody else’s money. We have unknowns about

what the future liabilities are going to be. We have more than $26,000 of cash now since the

subs didn’t take those offers. But we’ve got the unknown with respect to the City of Austin

litigation on the industrial site, what that's going to turn into. You know, there are other

contingencies. We still don’t know what the fix and resolution is on the -- on the, this deal.

So there’s still, you know, lots of open variables.”).

128 Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 261:20-262:8.

129 11 U.S.C. § 1129(b)(1).

1. Unfair Discrimination

The Panache Parties argue that the Plan unfairly discriminates against AFMN

in Class 3 and Panache in Class 4 by allowing Romspen’s first and second lien claims

and providing better treatment to creditors of equal propriety who have similar

claims.130 They contend that by forcing AFMN and Panache to receive distribution

in Class 11, but giving Classes 6–9 the option of receiving 90% of their undisputed

claims and 75% of their disputed claims, and by simply paying Class 10 90% of their

claims, the Plan cannot be confirmed due to unfair discrimination.

Courts look at the facts and circumstances of a case to determine whether

unfair discrimination exists.131 As discussed above, given the facts of this case and

the serious distrust and animosity between the parties, along with the very close

relationship between Mr. Zarafshani and the non-accepting subcontractors, the Court

finds that the disparate treatment of these claims is not unfair.

2. Fair & Equitable/Absolute Priority Rule

The Panache Parties argue that the Plan is not fair and equitable because it

allows Reomaster to retain its equity interests in violation of the absolute priority

rule set forth in 11 U.S.C. § 1129(b)(2)(B).132 The absolute priority rule requires the

plan to provide that creditors in senior classes get paid before creditors in junior

classes.133 The Panache Parties contend that because Reomaster, a pre-petition

equity interest holder, will retain control over the Reorganized Debtor and obtain

100% of the equity, the Plan violates the absolute priority rule. But the Panache

Parties’ argument ignores or dismisses that Reomaster’s original equity interests are

extinguished by the Plan.134 The rights Reomaster will obtain to equity in the

Reorganized Debtor are by virtue of its $5.4 million winning bid from the equity

auction. As discussed above, the Court finds that these equity interests were

appropriately marketed and that the equity auction was conducted in good faith.

Thus, the Court finds that the Plan is does not violate the absolute priority rule and

is fair and equitable as to the dissenting creditors.

130 Main Case, ECF No. 323, ¶ 36-38 (Panache Parties’ Obj. to Confirmation).

131 In re Cypresswood Land Partners, 409 B.R. 396, 434 (Bankr. S.D. Tex. 2009).

132 11 U.S.C. § 1129(b)(2)(B).

133 Cypresswood, 409 B.R. at 419.

134 Main Case, ECF No. 288, p. 14 (Plan - Class 12 treatment).

II. The Court will explain why the Panache Parties have standing to bring

their Equitable Subordination and Recharacterization claims in a

separate opinion.

The Court acknowledges the Romspen Parties’ continued objection to the

Panache Parties’ standing to bring the claims of equitable subordination and

recharacterization. The Court rules that the Panache Parties do have standing to bring

these claims for reasons that will be enumerated in a separate written opinion on the

motion for summary judgment.

III. Equitable Subordination is not warranted.

The Panache Parties seek equitable subordination under 11 U.S.C. § 510(c),

specifically, “full subordination of the [Romspen] Claims to all other creditors, with

corresponding subordination of Reomaster’s 75% equity behind Vesta Texas’s

25%.”135 This is after Panache, acting through Mr. Zarafshani, expressly agreed to

subordinate their interests to Romspen’s in the Binding Term Sheet—which was

extensively negotiated to settle, in part, the Panache Parties’ equitable subordination

claims from the Zen Garden Case.136 Relying on the superior lien promised in the

Binding Term Sheet, Romspen entered into a new lending arrangement with the

Debtor and provided funds to continue the redevelopment efforts, which were

necessary for the Project to begin making money and paying back its secured debt.137

After the Debtor entered into this new agreement with Romspen, Mr. Zarafshani

signed the Subordination Agreement on behalf of AFMN, wherein he, again, agreed

to subordinate AFMN’s claim (which is based on the Panache deficiency from the

Zen Garden case) to Romspen’s claims.138 So if the Panache Parties’ get their way,

Romspen, an entity that has provided the vast majority of the funding for the Project

over a number of years, will lose the secured position that it negotiated for and that

Mr. Zarafshani repeatedly agreed to.

135 Adversary Proceeding, ECF No. 202 at 17 (Panache Parties’ Post-Trial Brief).

136 Panache Ex. 324 ¶¶ 2, 14, Ex. A (Binding Term Sheet).

137 Romspen Ex. 3 (Romspen Proof of Claim attaching loan agreement between the Debtor and

Romspen).

138 Panache Ex. 3 (Subordination Agreement).

“Equitable subordination is an unusual remedy which should be applied only

in limited circumstances.”139 This provision of the Bankruptcy Code “allows the

Court to look beyond the form of a dispute or transaction to its substance and to

rearrange the priority of claims based upon the conduct of the creditors.”140 The Fifth

Circuit has articulated guidance for when equitable subordination is appropriate:

“(1) the claimant must have engaged in inequitable conduct; (2) the misconduct must

have resulted in injury to the creditors of the bankrupt or conferred an unfair

advantage on the claimant; and (3) equitable subordination of the claim must not be

inconsistent with the provisions of the Bankruptcy Code.”141

Generally, three categories of conduct can warrant equitable subordination:

“(1) fraud, illegality, breach of fiduciary duties; (2) undercapitalization; and (3)

claimant’s use of the debtor as a mere instrumentality or alter ego.” 142

“Undercapitalization generally refers to the insufficiency of capital contributions

made to the debtor corporation.”143 However, “undercapitalization alone generally

is insufficient to justify equitable subordination.”144

Additionally, “a claim should be subordinated only to the extent necessary to

offset the harm which the debtor or its creditors have suffered as a result of the

inequitable conduct.”145 Crucially, “equitable subordination is remedial, not penal,

and in the absence of actual harm, equitable subordination is inappropriate.”146

139 Fabricators, Inc. v. Tech. Fabricators, Inc. (In re Fabricators, Inc.), 926 F.2d 1458, 1464

(5th Cir. 1991).

140 e2 Creditors Tr. v. Stephens, Inc. (In re e2 Communs., Inc.), 354 B.R. 368, 401 (Bankr. N.D.

Tex. 2006) (collecting cases). See also Fabricators, 926 F.2d at 1464 (discussing the

development of the doctrine of equitable subordination as “a policy against fraud and the

breach of the duties imposed on a fiduciary of the bankrupt.” (citing Pepper v. Litton,

308 U.S. 295, 311 (1939)).

141 Wooley v. Faulkner (In re SI Restructuring, Inc.), 532 F.3d 355, 360 (5th Cir. 2008) (first

citing Benjamin v. Diamond (In re Mobile Steel Corp.), 563 F.2d 692, 700 (5th Cir. 1977),

and then citing Official Comm. of Unsecured Creditors v. Cajun Elec. Power Coop., Inc. (In

re Cajun Elec. Power Coop., Inc.), 119 F.3d 349, 357 (5th Cir. 1997)).

142 Wilson v. Huffman (In re Missionary Baptist Found. of Am., Inc.), 712 F.2d 206, 212 (5th

Cir. 1983)

143 Summit Coffee Co. v. Herby’s Foods, Inc. (In re Herby’s Foods), 2 F.3d 128, 131 (5th Cir.

1993).

144 Id. at 132.

145 SI Restructuring, Inc., 532 F.3d at 360–61 (citing Mobile Steel, 563 F.2d at 701).

146 Id. at 361.

To justify equitable subordination, the Court must make “specific findings

and conclusions with respect to each of the requirements.”147 Here, the Panache

Parties did not come close to meeting their burden.

The Panache Parties allege that the Romspen Parties engaged in inequitable

conduct by, among other things, disregarding corporate separateness,

undercapitalizing the Project, self-dealing, and failing to provide financial

transparency.148 The evidence, including Mr. Zarafshani’s own testimony about the

worth of the project, did not support that the project was undercapitalized and the

Court does not believe that it was. Even if it were, undercapitalization alone is not

enough.149

As to the other factors—fraud, illegality, breach of fiduciary duties, and

claimant’s use of the Debtor as a mere instrumentality or alter ego—there is

insufficient evidence to support them. Overall, the assertion that the Romspen

Parties acted inequitably is simply not supported by the substantial body of the

evidence. While the Panache Parties seize on intemperate language in internal

Romspen correspondence, actions speak louder than words: the Romspen Parties

wrote large checks on the project for a long time, and trusted Mr. Zarafshani and

Panache essentially without questioning for a long time—if anything, longer than

they perhaps should have. Eventually, understandably, perhaps belatedly, they lost

faith in Mr. Zarafshani. Even after Romspen began trying to exercise more control

over his spending, they continued paying bills, but they also became concerned about

the justification for many of them, including expenses from the contractors who were

extremely close to Mr. Zarafshani,150 and found the explanations they received

unsatisfactory.151 Their decision to stop pouring money into the Project without

147 Fabricators, 926 F.2d at 1465 (citing Missionary Baptist Found. of Am., Inc., 712 F.2d at

212).

148 See Adversary Proceeding, ECF No. 54-1 at 38–39 (Second Amended Complaint).

149 Herby’s Foods, 2 F.3d at 132.

150 See, e.g., Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 37:22-

38:3 (uncomfortable with some subcontractors constituting “the majority of the expenditures”

yet “we were having trouble quantifying that work”).

151 See, e.g., Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 39:6-12

(uncomfortable with payments made on deadlines without adequate information despite

requests).

more measure and consideration was reasonable and was not inequitable in light of

their very legitimate doubts about the Project and its progress.152

The Romspen Parties’ witnesses’ testimony was highly credible. There was

not evidence that the Romspen Parties intentionally sabotaged funding or

intentionally sabotaged the project or sought to induce Mr. Zarafshani or the other

Panache Parties to invest time and money in the Project with no reward or hid their

nefarious designs from him.

The Panache Parties have made much of the emails between the Romspen

partners and the language in those emails. But in context, what was apparent to the

Court was that the Romspen Parties engaged in good faith, robust debate, although

it was, at times, vulgar or unprofessional.153 The emails did not show a nefarious

scheme, but rather, an all-hands-on-deck attempt to make the best of what even Mr.

Zarafshani’s supporter within the team (Mr. Weldon) acknowledges had been a long

and unsuccessful situation.154 Maybe the Romspen Parties should have made

different judgment calls or business decisions in this difficult situation; but whether

or not the better side won the debate on any particular business decision, the

decisions they made are well-supported and in good faith and by no means

inequitable or unfair.

The Court denies the Panache Parties’ claim for equitable subordination.

152 Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 85:8-9 (“Didn’t

see where the funding was going into the project based on progress”); Trial Tr. (Day 5, April

28, 2026) at 113:12-15 (“We felt like we were going nowhere. It was like a black hole. … It

as like we were just putting money in and it seemed like we were making no discernible

progress.”).

153 Adversary Proceeding ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 70:2-15 (expressing

some regret at not being “more artful in my prose” but emphasizing the importance of free

exchange of views within the organization’s decision-making).

154 Regarding Panache’s Ex. 4, for instance, Mr. Roitman gave a lengthy, detailed, and credible

account for the context of this email and the sentiments expressed therein. See Adversary

Proceeding, ECF No. 192, Trial Tr. (Day 5, April 28, 2026) at 75 and following. The Court

also notes that this email was forwarded to Mr. Zarafshani and the Court does not find

credible any suggestion that he did not read it—and this was months before he entered into

the Binding Term Sheet.

IV. Recharacterization is not warranted.

In addition to or in the alternative from equitable subordination, the Panache

Parties ask the Court to “recharacterize the [Romspen] claims as equity.”155

Recharacterization is “part of the bankruptcy courts’ authority to allow and disallow

claims under 11 U.S.C. § 502.”156 The Court looks to state law to determine whether

a claim is enforceable against the debtor.157 If state law classifies a claim as equity

rather than debt, then the bankruptcy court is required to recharacterize the claim

rather than disallow it.158 Under Texas law, the factors for recharacterization of debt

as equity are:

(1) the intent of the parties; (2) the identity between creditors and

shareholders; (3) the extent of participation in management by the

holder of the instrument; (4) the ability of the corporation to obtain

funds from outside sources; (5) the ‘thinness’ of the capital structure in

relation to debt; (6) the risk involved; (7) the formal indicia of the

arrangement; (8) the relative position of the obligees as to other

creditors regarding the payment of interest and principal; (9) the voting

power of the holder of the instrument; (10) the provision of a fixed rate

of interest; (11) a contingency on the obligation to repay; (12) the

source of the interest payments; (13) the presence or absence of a fixed

maturity date; (14) a provision for redemption by the corporation; (15)

a provision for redemption at the option of the holder; and (16) the

timing of the advance with reference to the organization of the

corporation.159

155 Adversary Proceeding, ECF No. 202 at 21 (Panache Parties’ Post-Trial Brief).

156 Grossman v. Lothian Oil Inc. (In re Lothian Oil Inc.), 650 F.3d 539, 542 (5th Cir. 2011).

157 Id. at 543 (citing 11 U.S.C. § 502(b); Butner v. United States, 440 U.S. 48, 54 (1979)).

158 Id.

159 In re Mangia Pizza Invs., LP, 480 B.R. 669, 707 (Bankr. W.D. Tex. 2012) (quoting Fin Hay

Realty Co. v. United States, 398 F.2d 694, 696 (3d Cir. 1968)). The Fin Hay Realty Co.

factors are incorporated into Texas law by Arch Petrol. v. Sharp, 958 S.W.2d 475, 477 n.3

(Tex. App.—Austin 1997, no pet.). See Mangia Pizza, 480 B.R. at 706–07 (citing Lothian

Oil Inc., 650 F.3d 539).

“In applying these tests, we ‘consider all the factors and weigh the evidence favoring

characterization of the [interest] as debt or equity, while realizing that the various

factors are not of equal significance and that no one factor is controlling.’”160

Here, the parties seem to agree that one Fin Hay factor supports

recharacterization: the thinness of the Debtor’s capital structure.161 But even that is

overstated by the Panache Parties. The Panache Parties argue that “No informed

outside lender would advance funds to a single-asset entity with $750 of equity, no

working capital, and existing debt of more than twice the asset’s purchase price.”162

However, the Romspen Parties argue, and the Court agrees, that the capital structure

was what these very parties bargained for and agreed to in the Binding Term Sheet.

If Mr. Zarafshani made a deal he regrets, that is not grounds for recharacterization

(and as the Court noted at trial, Romspen likely regrets the deal it made, too, given

the size and length of its investment in this Property with essentially no return).

In terms of capitalization, the Court finds that this deal was not unusual for

real estate development transactions. Of course, the forced-sale or liquidation value

of the property at the time was not very high, but all agreed that the Property had a

lot of upside, if the development could be managed properly. The Court lacks

sufficient evidence to arrive at a valuation as of the time of these transactions, but it

is confident saying that after weighing the risks, the equity had some meaningful

value. True, at the time they entered into the deal, all knew that it was risky—but the

payoffs could be huge. Business people, investors, and developers take those risks

all the time. The Court has seen sophisticated business people think there was still

equity value in many less hopeful situations than this one. Mr. Zarafshani stood to

make a lot of money if things had gone well, but he knew perfectly well—and agreed

in multiple documents—that his claims were subordinate to a lot of money that

160 Lothian Oil Inc., 650 F.3d at 544 (quoting Estate of Mixon v. United States, 464 F.2d 394,

402 (5th Cir. 1972)).

161 Adversary Proceeding, ECF No. 201 at 3 (Romspen Parties’ Closing Brief); ECF No. 206 at

19–20 (Panache Parties’ Post-Trial Brief).

162 Adversary Proceeding, ECF No. 206 at 21 (Panache Parties’ Post-Trial Brief - citing

Romspen Trial Brief, ECF 178 ¶ 19(5); Mangia Pizza, 480 B.R. at 707, 711; ECF No, 190,

Trial Tr. (Day 3, April 24, 2026) 178:14–20, 178:24–179:6, 179:3–6, 179:11–180:3, 180:17

20).

Romspen had put into this and that came prior to any money being owed to him or

his affiliated entities.

The Romspen Parties concede certain of the Fin Hay factors as neutral:

identity between shareholders and creditors, source of interest payments, and the

timing of advances in relation to Debtor’s formation (as to the Romspen Deficiency

Claim).163

The Panache Parties argue that the “identity-of-interest” factor is not neutral

and is in favor of recharacterization. In support of its argument, Panache points the

Court to the fact that the same six partners individually invested in the Romspen

fund and controlled the fund and Reomaster, all of which operated under the same

roof as the Debtor, RIC (Austin). The testimony at trial supported this contention:

Mr. Roitman previously referred to the Romspen entities as a “spaghetti org chart”164

and Mr. Weldon and Mr. Oelbaum each discussed the various “hats” the partners

wore when representing each entity and the lack of formal restrictions on their

roles.165 It is also true that the partners each had a financial stake in the company,

but the fund was a large one and the Panache Parties seem to have generally

exaggerated the partners’ ability to collect on their personal investments on the basis

of this particular project. In addition, there was credible testimony that there is

currently a cessation on granting redemptions requested by investors and that any

cash recovered by Romspen could not immediately go to any investor.166 In any case,

163 Adversary Proceeding, ECF No. 201 at 6–7 (Romspen Parties’ Closing Brief).

164 Adversary Proceeding, ECF No. 192, Trial Tr. (Day 5, April 28, 2026) at 10:12–16 (“In fact,

I asked you about the structure of Romspen and its various entities, and you described it as

a spaghetti pork chop. A Well, I think that's a bit of a typo. I think it was a spaghetti org

chart.”).

165 Adversary Proceeding, ECF No. 189, Trial Tr. (Day 2, April 23, 2026) at 232:23–24 (“I was

holding a hat in RIC, Romspen Investment Corp, and in RIC (Austin).”); ECF No. 190, Trial

Tr. (Day 3, April 24, 2026) at 159:20 (“Sorry. There’s a lot of hat moving there.”); 160:2–4

(“It would be hard in certain circumstances to do that, but at all times, I would think that

we’re acting in the best interests of all of the entities that we represent.”).

166 Adversary Proceeding, ECF No. 190, Trial Tr. (Day 4, April 27, 2026) at 56:19–57:16 (“So

if a dollar is recovered from an RMLP loan and they collect it into RMLP, that dollar doesn't

immediately get distributed to investors, right? A: No. Q: And there’s been discussion about

this notion of liquidity and redemptions. A: Correct. Q: And it’s the redemption process

through which investors would be recovering funds, right? A: Yes. Q: And I think you --

your testimony was that at the fund level there's no new investors that are able to invest

the Court believes that the record reflects that the Romspen professionals were

engaging in good faith efforts to try to move this Project forward, including by more

than amply funding it for quite a long time with a very free hand and trying to, as

one witness memorably put it, “maximize the value of the property, to spend the

most efficiently as we could to get there,” because “a rising ride lifts all boats.”167

The Court does not weigh this factor heavily under the circumstances.

After considering the remaining factors, the Court finds that they support

denying recharacterization. The intent of the parties (factor 1), as reflected in the

Binding Term Sheet and Subordination Agreement that Mr. Zarafshani and/or his

entities entered, was always and obviously that the amounts owed to Romspen would

be debt.168 If fact, in the Binding Term Sheet, Panache expressly agreed to the

Debtor’s assumption of the Romspen Deficiency Claim.169 These documents also

formalized the agreements between the parties (factor 7); this was not a handshake

deal. This was a highly negotiated resolution of a dispute between experienced and

sophisticated parties that is clearly an attempt to resolve a bad situation, which would

only be made worse (and more expensive) by continued fighting.

Credible testimony also convinces the Court that the Romspen Parties were

supportive of third-party financing (factor 4).170 In fact, the Binding Term Sheet

originally contemplated third-party financing for the Debtor, although it also

money in, right? A: Correct. Q: And at the fund level, there are limitations or restrictions or

maybe even cessations on granting redemptions requested by investors. Is that right? A

Currently a cessation, yes. Q: So if RMLP recovers cash as a result of the RIC (Austin)

project – A: Yes. Q: -- is that cash immediately going to any investor? A: It cannot.”).

167 Adversary Proceeding, ECF No. 191, Trial Tr. (Day 4, April 27, 2026) at 64: 11-12.

168 Panache Exs. 324 (Binding Term Sheet); 3 (Subordination Agreement).

169 Panache Ex. 324 ¶ 14 (“Panache and Romspen shall enter into new capitalization documents,

including without limitation, an intercreditor agreement whereby the New Owner assumes

the financial obligations for the Romspen Deficiency Claim and the Panache Deficiency

Claim.”).

170 Adversary Proceeding, ECF No. 189, Trial Tr. (Day 2, April 23, 2026) at 107:6-9 (“Was

RMLP supportive of obtaining third-party financing so that -- as set forth in the binding term

sheet? MR. WELDON: Yes.”); 13:12-16 (third-party lender would want the information

Romspen was requesting but had not received, “if not more”); Trial Tr. (Day 4, April 27,

2026) at 7-11 (third party financing unlikely without information).

addressed a contingency where Romspen acted as the lender.171 In all, the loan

documents formalizing the agreement between the parties appear to be fairly

standard and in line with the Binding Term Sheet: Romspen negotiated a superior

lien position to assure (to the extent possible) that it would be repaid, there is a fixed

rate of interest (10%), a fixed maturity date (December 31, 2027), and a firm

obligation to repay (factors 8, 10, 11, 13).172 These factors suggest that the parties

always intended and acted as though the money obtained from Romspen was debt,

not equity.

While the financing was risky (factor 6) given the history of the Project and

condition of the property, Romspen carefully maintained its senior position and its

security interest. Even in the poor shape in which it currently lies, the property has

been appraised a more than $30 million and it obviously has considerable upside.

Again, the Court has seen much riskier situations without any cause for

recharacterization. Further, Mr. Zarafshani’s own rosy estimates of the past are in

considerable tension with the Panache Parties’ claim now that a senior secured

position was so shaky as to support recharacterization. Contrary to Panache’s

contentions, the Court finds that, under these unique circumstances, this factor also

does not support recharacterization.

For these reasons, the Court easily finds that the recharacterization cause of

action should be denied.

V. The tortious interference claims against Panache, Vesta Texas, and Mr.

Zarafshani must be denied because they are not strangers to the contract

with which they allegedly interfered.

Romspen brings a claim of tortious interference against Panache, Vesta Texas,

and Adam Zarafshani, asserting that the filing of this adversary case seeking

recharacterization and subordination tortiously interfered with the Subordination

171 Panache Exs. 324 ¶ 2 (“The funding for the sale proceeds paid to Romspen or Romspen SPE

for the New Owner for title to the Construction Project will be cash proceeds obtained from

third party financing.”); Ex. A (referring to a third-party loan).

172 See generally Romspen Ex. 3, Ex. A (Loan agreement between RIC (Austin) LLC and

Romspen).

Agreement.173 The named plaintiffs on the live pleading in this case are Panache,

AFMN, and Vesta Texas. Adam Zarafshani is not a plaintiff in this adversary

proceeding.174

Under Texas law, “The elements of a claim for tortious interference with an

existing contract are ‘(1) the existence of a contract subject to interference; (2)

willful and intentional interference; (3) the willful and intentional interference

caused damage; and (4) actual damage or loss occurred.’”175 A party cannot recover

for tortious interference if it does not possess legal rights under the contract.176

“To be legally capable of tortious interference, the defendant must be a

stranger to the contract with which he allegedly interfered.”177 Panache, Vesta Texas,

and Adam Zarafshani are not directly parties to the Subordination Agreement, which

was between AFMN Investment, LLC and Romspen Mortgage Limited

Partnership.178

However, the analysis does not end there. It is common sense that corporations

can only act through their human agents.179 When it is alleged that a corporate agent

defendant induced a corporation to breach a contract, “the alleged act of interference

must be performed in furtherance of the defendant’s personal interests so as to

preserve the logically necessary rule that a party cannot tortiously interfere with its

own contract.”180 Therefore, it is the plaintiff’s burden to prove “that the defendant

acted in a fashion so contrary to the corporation’s best interests that his actions could

173 Adversary Proceeding, ECF No. 30 at 9 (Romspen First Am. Counterclaims and Third-Party

Claims - “Zarafshani caused Panache, Vesta Texas, and Junior Lender to initiate the

Adversary Proceeding. Zarafshani, and thus Panache and Vesta Texas, knew and intended

that the Adversary Proceeding would interfere with Senior Lender’s rights under the SIA.”).

174 Adversary Proceeding, ECF No. 54-1 (Second Amended Complaint).

175 Inwood Nat’l Bank v. Fagin, 706 S.W.3d 342, 347 (Tex. 2025) (quoting Exxon Mobil Corp.

v. Rincones, 520 S.W.3d 572, 588 (Tex. 2017)).

176 Id. (quoting Associated Indem. Corp. v. CAT Contracting Inc., 964 S.W.2d 276, 288 (Tex.

1998)) (collecting cases).

177 Cmty. Health Sys. Prof. Servs. Corp. v. Hansen, 525 S.W.3d 671, 690 (Tex. 2017) (citing

Holloway v. Skinner, 898 S.W.2d 793, 795–96 (Tex. 1995)).

178 Panache Ex. 3. Obviously, AFMN is not a stranger to this contract and therefore was not

sued under this theory.

179 E.g., Holloway, 898 S.W.2d at 795.

180 Id. at 796.

only have been motivated by personal interests.”181 “A corporate officer’s mixed

motives—to benefit both himself and the corporation—are insufficient to establish

liability.”182 When determining whether the corporate officer acted against the

corporation’s interests, the Court is to consider the corporation’s “evaluation of the

agent’s actions.”183 “If the principal ‘does not complain about its agent’s actions,

then the agent cannot be held to have acted contrary to the corporation’s

interests.’”184

a. Adam Zarafshani is not liable for tortious interference in his

personal or corporate agent capacities.

Here, Mr. Zarafshani is not liable for tortious interference in his individual

capacity. He is not a plaintiff in the adversary proceeding.185 The conduct that

allegedly interfered with the contract was the adversary proceeding. He, as himself,

did not file the adversary proceeding.

Mr. Zarafshani is also not liable for tortious interference in his capacity as a

corporate agent of Panache or of Vesta Texas. While Mr. Zarafshani did concede

that he will receive some personal benefit if the adversary proceeding is successful,

mixed motives are not enough.186 Panache and Vesta Texas both stand to benefit if

they succeed on their claims in this lawsuit. Therefore, it cannot be said that Mr.

Zarafshani acted “only in his own interest and against the company’s interest.”187

Further, neither Panache nor Vesta Texas have complained about Mr. Zarafshani’s

conduct, as they have each secured separate counsel from Mr. Zarafshani and have

continued to pursue this case. For these reasons, the claim for tortious interference

against Mr. Zarafshani is denied.

181 Id.; see also Cmty. Health Sys. Prof. Servs. Corp., 525 S.W.3d at 691.

182 Cmty Health Sys. Prof. Servs. Corp., 525 S.W.3d at 695 (quoting Powell Indus., Inc. v. Allen.,

985 S.W.2d 455, 457 (Tex. 1998)).

183 Id. at 695 (citing Allen, 985 S.W.2d at 457).

184 Id. (quoting Allen, 985 S.W.2d at 457).

185 See Adversary Proceeding, ECF No. 54-1 (Second Amended Complaint).

186 See, e.g., Allen, 985 S.W.2d at 457 (“[T]he mere existence of a personal stake in the outcome

is insufficient to show that the defendant committed an act of willful or intentional

interference.” (citing Holloway, 898 S.W.2d at 796)).

187 Id. (citing Holloway, 898 S.W.2d at 796) (emphasis in original).

The Court recognizes the arguable inequity of allowing Mr. Zarafshani to

embark upon, and to have his other affiliated entities embark upon, a course of action

he agreed through another entity not to, all to the significant detriment of a

contractual counterparty. But that is the law as this Court understands it. (And of

course, the contracts could have bound him personally as well as his affiliates, but

they did not.)

b. Panache is not liable for tortious interference because AFMN is its

subsidiary.

AFMN, a signatory to the contract, is a subsidiary of Panache.188 There is a

split of authority among the Texas Courts of Appeal189 as to whether a parent

corporation can be liable for interfering with the contracts of its subsidiaries, and the

Supreme Court of Texas has not yet weighed in on the issue.190 In ProTradeNet,

LLC v. Predictive Profiles, Inc., the United States District Court for the Western

District of Texas surveyed the law on this issue.191 Relying on “Texas appellate court

precedent, Fifth Circuit precedent, United States Supreme Court precedent, and

Western District of Texas precedent,” the ProTradeNet court held that “a corporate

parent is incapable of tortiously interfering with the contracts of its subsidiary.”192

This Court agrees with ProTradeNet. Because AFMN is a subsidiary of Panache,

Panache’s economic interests are so aligned with AFMN that Panache is incapable

188 Adversary Proceeding, ECF No. 189, Trial Tr. (Day 2, April 23, 2026) 296:23–297:3 (“Q:

There’s AFMN, which is another single purpose entity that you formed and — to hold the

Panache’s removable claim, right? A: I caused it to be formed, yes. Q: All right. But it’s

owned by Panache. A: Its single member is Panache Development.”).

189 More generally, there is a split of authority on this issue across the country, including whether

a parent company can interfere with its subsidiary’s contracts at all, or whether it is just

privileged to do so. See generally Valores Corporativos, S.A. de C.V. v. McLane Co., Inc.,

945 S.W.2d 160, 167 (Tex. App.—San Antonio 1997, writ denied).

190 E.g., Cleveland Reg’l Med. Ctr., L.P. v. Celtic Props. L.C., 323 S.W.3d 322, 348 (Tex.

App.—Beaumont 2010, pet.denied); Grizzle v. Tex. Comm. Bank, 38 S.W.3d 265, 286 (Tex.

App.—Dallas 2001), rev’d in part on other grounds, 96 S.W.3d 240 (Tex. 2002); H.S.M.

Acquisitions, Inc. v. West, 917 S.W.2d 872, 882–83 (Tex. App.—Corpus Christi 1996, writ

denied); Am. Med. Int’l v. Giurintano, 821 S.W.2d 331, 336 (Tex. App.—Houston [14th

Dist.] 1991, no writ); Valores Corporativos, S.A. de C.V, 945 S.W.2d 160.

191 369 F.Supp. 3d 788, 791–92 (W.D. Tex. 2019).

192 Id. at 793 (collecting cases).

of tortiously interfering with AFMN’s contracts.193 The tortious interference claim

against Panache is dismissed.

c. Vesta Texas is not liable for tortious interference because its

interests are too closely aligned with (and even subject to the

control of) AFMN, Panache, and Mr. Zarafshani.

Vesta Texas is a single-asset entity that holds a 25% interest in the Debtor,

RIC (Austin).194 Vesta Texas is managed by Mr. Zarafshani and his wife.195 Mr.

Zarafshani is both a co-member and a co-manager of Vesta Texas.196

“[T]here can be no tortious interference when there is a complete identity of

interests between a party to a contract and the defendant who is accused of

interfering with the contract.”197 On the facts of this case, the Court finds that such

a unity of interests exists between Vesta Texas and Panache, AFMN, and Mr.

Zarafshani. To find that Vesta Texas could tortiously interfere with the contract

while these other entities cannot would be an unsustainable result.198 Romspen’s

claim of tortious interference against Vesta Texas is dismissed.

193 See Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752, 771 (1984) (“A parent and its

wholly owned subsidiary have a complete unity of interest. Their objectives are common,

not disparate; their general corporate actions are guided or determined not by two separate

corporate consciousnesses, but one.”).

194 The evidence shows that the parties initially contemplated Vesta Texas having a 24% interest,

but when the RIC (Austin) LLC Agreement was formed, Vesta Texas ended up with a 25%

interest. Compare Panche Ex. 324, at 5 (Binding Term Sheet - “The equity interests of the

New Owner will be . . . 24% owned (whether directly or indirectly) by an entity exclusively

owned and controlled by Zarafshani or an estate-planning trust exclusively controlled by

Zarafshani (‘Zarafshani Owner Entity’)”), with Panache Ex. 54 (RIC (Austin) LLC

Agreement). The testimony at trial was mostly that Vesta Texas had a 25% interest. See, e.g.,

Adversary Proceeding, ECF No. 189, Trial Tr. (Day 2, April 23, 2026) at 234:14–17 (“And

that’s not the way it was ultimately done. It was done 75/25, correct? MR. WELDON: It was

negotiated and changed in the operating agreement, the LLC agreement.”).

195 Adversary Proceeding, ECF No. 189, Trial Tr. (Day 2, April 23, 2026) at 296:18–22 (“Q:

And then there’s Vesta Texas. MR. ZARAFSHANI: Yes. Q: And that’s a single-purpose

entity that you formed to hold the minority ownership interest in RIC (Austin), right? A: My

wife and I, yes.”).

196 Adversary Proceeding, ECF No. 139-17 at 3 (Romspen Motion for Summary Judgment).

197 ProTradeNet, LLC, 369 F.Supp. 3d at 791 (citing Holloway, 898 S.W.2d at 797)

198 See also Schoellkopf v. Pledger, 778 S.W2d 897, 903 (Tex. App.—Dallas 1989, writ denied)

(citing Baker v. Welsh, 735 S.W.2d 548, 550 (Tex. App.—Houston [1st Dist.] 1987, writ

denied)).

VI. Because the predicate tort fails, the civil conspiracy count against AFMN,

Panache, Vesta Texas, and Mr. Zarafshani must fail.

Under Texas law, civil conspiracy is not an independent tort, but a theory of

vicarious liability that “requires some underlying wrong.”199 Thus, to recover on a

civil conspiracy claim, liability for an underlying intentional tort must be

established.200 However, as liability for tortious interference was not established

against any of the Panache parties, Romspen’s claim for civil conspiracy fails and is

dismissed.

VII. AFMN has breached the Subordination Agreement contract but the

Court will evaluate remedies at a later point.

Romspen alleges that AFMN breached the Subordination Agreement. The

Panache parties, in return, argue that (1) the Subordination Agreement was not

supported by adequate consideration; (2) the Subordination Agreement was entered

into under economic duress; and (3) AFMN’s performance was excused because of

prior material breach by the Romspen Parties.

To prove a breach of contract, the plaintiff must show “(1) a valid contract

exists; (2) the plaintiff performed or tendered performance as contractually required;

(3) the defendant breached the contract by failing to perform or tender performance

and contractually required; and (4) the plaintiff sustained damages due to the

breach.”201 Under Texas law, a party suing for breach of contract must elect to

recover either legal damages or the equitable remedy of specific performance.202

“Specific performance is not a separate cause of action but rather a substitute for

199 Agar Corp., Inc. v. Electro Circuits Int’l, LLC, 580 S.W.3d 136, 141 (Tex. 2019).

200 E.g., Firestone Steel Prods. Co. v. Barajas, 927 S.W.2d 608, 617 (Tex. 1996) (“Civil

conspiracy is an intentional tort. For a civil conspiracy to arise, the parties must be aware of

the harm or wrongful conduct at the beginning of the agreement. Because a conspiracy

requires intent, parties cannot conspire to be negligent.” (citations omitted) (first citing

Massey v. Armco Steel Co., 652 S.W.2d 932, 933 (Tex. 1983), and then citing Triplex

Commc’ns, Inc. v. Riley, 900 S.W.2d 716, 719 (Tex. 1995))).

201 Pathfinder Oil & Gas, Inc. v. Great W. Drilling, Ltd., 574 S.W.3d 882, 890 (Tex. 2019)

(citing USAA Tex. Lloyds Co. v. Menchaca, 545 S.W.3d 479, 501 n.21 (Tex. 2018)).

202 White Knight Dev., LLC v. Simmons, 718 S.W.3d 203, 209 (Tex. 2025) (citing Goldman v.

Olmstead, 414 S.W.3d 346, 361 (Tex. App.—Dallas 2013, pet. denied)).

monetary damages when such damages would be inadequate.”203 To be entitled to

specific performance, a plaintiff must show that (1) money damages would be

inadequate, (2) the plaintiff was ready, willing, and able to perform under the

contract, and (3) the plaintiff performed, tendered performance of, or was excused

from performing its contractual obligations.204

First, the Court disagrees with the Panache Parties’ contention that the

Subordination Agreement was not supported by adequate consideration. This is a

simple analysis. The Subordination Agreement constrains all parties in various ways,

including Romspen.205 The exchange of money is not necessary to support a contract

with consideration. It is black-letter law that the voluntary foregoing of a legal right

is sufficient consideration. 206 Accordingly, there was consideration for the

Subordination Agreement. The Subordination Agreement was, then, a valid and

enforceable contract.

AFMN breached the Subordination Agreement. Under the Subordination

Agreement, AFMN agreed not to bring any “Enforcement Action” until Romspen’s

claim had been paid in full and after January 1, 2031, or until Romspen had

commenced an Enforcement Action. Yet, before any of these conditions had been

met, AFMN brought this adversary proceeding, an enforcement action as defined by

the Subordination Agreement. It also failed to follow Romspen’s instructions to vote

in favor the plan of reorganization in this case despite its obligation to do so under

the Subordination Agreement.207

The Court now turns to the Panache Parties’ defenses. Panache Parties argue

that the Subordination Agreement was entered into under economic duress. Under

Texas law, “A contract may be invalid or unenforceable by reason of economic

duress where undue or unjust advantage has been taken of a person’s economic

203 Id. at 209 (citing Ifiesimama v. Haile, 522 S.W.3d 675, 685 (Tex. App.—Houston [1st Dist.]

2017, pet. denied); Scott v. Sebree, 986 S.W.2d 364, 368 (Tex. App.—Austin 1999, pet.

denied.)).

204 Id. at 209; DiGuiseppe v. Lawler, 269 S.W. 588, 593–94, 599 (Tex. 2008).

205 See, e.g., Panache Ex. 3 §§ 3(b). 8(c), (d), 10(a).

206 E.g., Hamer v. Sidway, 27 N.E. 256 (1891); Leonard v. Texaco, Inc., 422 S.W.2d 160, 165

(Tex. 1967).

207 Panache Ex. 3 § 3(d)(iv).

necessity or distress to coerce him into making the agreement.”208 The elements of

economic duress are “(1) a threat to do something which a party threatening has no

legal right to do; (2) some illegal exaction or some fraud or deception; and (3)

imminent restraint such as to destroy free agency without present means of

protection.”209

Here, the evidence does not support a finding of economic duress. The

Subordination Agreement was negotiated at length by counsel representing both

parties as part of an intricate transactional structure that was itself a product of

multiple years of litigation surrounding the prior bankruptcy case;210 it was in fact

part of the parties’ joint efforts to button-up some of their paperwork that had been

left somewhat incomplete since the time of the last bankruptcy. The Subordination

Agreement was not signed under economic duress.

The Panache Parties also argue prior material breach, although neither they

nor the other side have provided much briefing or argument on this issue. Under

Texas law, “It is a fundamental principle of contract law that when one party to a

contract commits a material breach of that contract, the other party is discharged or

excused from further performance.”211 Crucially, while a material breach by the

other party excuses a party’s future performance, a nonmaterial breach does not.212

The Panache Parties’ arguments on material breach form a part of their general

“everything but the kitchen sink” approach to this case. They first alleged that the

material breach was Romspen including certain attorneys’ fees in its proof of claim

contrary to the parties’ agreement.213 But Romspen was never paid those fees, it

merely asserted them, and apparently both did so after this adversary proceeding was

208 King v. Bishop, 879 S.W.2d 222, 224 (Tex. App.—Houston [14th Dist.] 1994, no writ)

(citing Brown v. Cain Chemical, Inc., 837 S.W.2d 239, 244 (Tex. App.—Houston [1st Dist.]

1992, writ denied)).

209 Id. at 223–24 (citing Simpson v. MBank Dallas, N.A., 724 S.W.2d 102, 109 (Tex. App.—

Dallas 1987, writ ref’d n.r.e.)).

210 See, e.g., Panache Ex. 324 ¶ 14 (discussing “capitalization documents” including an “inter

creditor agreement”).

211 Bartush-Schnitzius Foods Co. v. Cimco Refrigeration, Inc., 518 S.W.3d 432, 436 (Tex. 2017)

(quoting Mustang Pipeline Co. v. Driver Pipeline Co., 134 S.W.3d 195, 196 (Tex. 2004)).

212 Id. (citing Levine v. Steve Scharn Custom Homes, Inc., 448 S.W.3d 637, 654 (Tex. App.—

Houston [1st Dist.] 2014, pet. denied)).

213 Adversary Proceeding, ECF No. 147 at pages 7-9 (Response and Objection to Romspen

Motion for Summary Judgment).

filed and subsequently withdrew the request for these fees. This argument is all but

frivolous. Yet it was the only one cited in the Panache Parties’ response to

Romspen’s Motion for Summary Judgment on this breach of contract.214

After that extensive briefing, the Panache Parties then put up more alleged

material breaches to excuse the non-compliance with the Subordination Agreement.

But these other, belated alleged material breaches are equally unconvincing. One is

that because the Subordination Agreement requires both parties to comply with the

Binding Term Sheet (which includes fiduciary duties) Romspen’s alleged breaches

of fiduciary duties excuse the signatories from compliance with the Subordination

Agreement. But the Court finds here that Romspen did not behave inequitably or

breach its fiduciary duties and therefore this effort must fail. Another alleged

material breach was blocking third-party financing efforts. But the evidence doesn’t

support that allegation, as discussed above. There was ample evidence that certain

aspects of the Project, budget information, and other factors all stood in the way of

third-party financing and that Romspen was supportive of that financing. Yet another

alleged material breach is Romspen’s making the Panache Parties send personnel to

Kansas City to access the Debtor’s business records and refusing to make copies.

But pictures of the documents were apparently taken,215 and the Court believes

access was sufficient. In addition, of course, the majority of the really important

documents concerning Project progress were in the Panache Parties’ possession. If

this was a breach, which the Court doubts, it was not a material one.

Romspen has requested specific performance, damages, and attorney’s fees.

Specific performance would involve recognizing Romspen’s right to control

AFMN’s vote on the plan and requiring it in various other ways to comply with the

Subordination Agreement. Some of this relief may be moot, but some of it may be

warranted.

Damages may also be warranted in addition or in the alternative, for instance

in the form of additional and unnecessarily accrued interest and other costs that

would not have been incurred but from AFMN’s breach.

214 See Adversary Proceeding, ECF No. 147 at pages 7-9.

215 Adversary Proceeding, ECF No. 187, Trial Tr. (Day 1, April 22, 2026) at 120:16-18.

Finally, Romspen argues that it is entitled to attorney’s fees under Texas Civil

Practice & Remedies code ch. 38. “To recover attorney’s fees under section 38.001,

a claimant must meet several prerequisites. The claimant must: (1) plead and prevail

on a claim for which attorney’s fees are permitted under section 38.001, (2) be

represented by an attorney, (3) present the claim to the opposing party or his agent,

and (4) demonstrate that the opposing party did not tender payment within thirty

days after the claim was presented.”216 “Reasonable attorney’s fees” are recoverable

for a breach of contract claim under § 38.001(b)(8). The Court believes that

Romspen is likely entitled to at least some attorney’s fees given this law.

The parties did not spend much time on remedies, and the Court is unclear on

their arguments on this point. The Court will enter a scheduling order regarding

remedies for the breach of contract and let the parties weigh in on what remedies

might be appropriate as well as how to determine attorney’s fees.

The Court also requests that the parties consider settling this issue if at all

possible. Given the potentially duplicative nature of any damages against debts

likely already owed in this case, and the potential mootness of specific performance

remedies, the Court is hopeful that further litigation might be unnecessary.

VIII. The objections to the Romspen Claims and secured status are overruled.

The Panache Parties state that they “have reviewed the Romspen Claims and

find them objectionable” and ask the Court to sustain its objections and deny the

Romspen claims. 217 Specifically, the Panache Parties “dispute the amount,

calculation, priority, perfection, and secured status of the Romspen Claims” and

assert that “Romspen failed to credit the ZG Canada Collateral to the indebtedness

asserted in the Romspen Claims and asserted unearned interest and fees.”218

As discussed above, the Romspen Parties filed two proofs of claim, the

Romspen Loan Claim and the Romspen Deficiency Claim. The Romspen Loan

Claim is for $110,320,744.29 at 10% interest. This claim purports to be secured by

real estate and “all personal property.” The Romspen Deficiency Claim is for

216 1/2 Price Checks Cashed v. United Auto Ins. Co., 344 S.W.3d 378, 383 (Tex. 2011) (citing

Tex. Civ. Prac. & Rem. Code §§ 38.001, 38.001).

217 Adversary Proceeding, ECF No. 54-1 at 40 (Second Amended Complaint).

218 Adversary Proceeding, ECF No. 54-1 at 40 (Second Amended Complaint).

$99,664,917.44 at 10% interest, also secured by real estate and “all personal

property.” Both proofs of claim attach evidence of their respective loans and

documentation about the security interests.

The Court overrules the Panache Parties’s objections. Under Federal Rule of

Bankruptcy Procedure 3001(f), “A proof of claim signed and filed in accordance

with these rules is prima facie evidence of the claim’s validity and amount.” “The

claimant will prevail unless the objecting party produces evidence sufficient to rebut

the prima facie validity of the claim.”219 Here, Panache did not provide sufficient

evidence to rebut Romspen’s prima facie case and the extensive testimony and

documentation that support the claim including its status as secured. The Panache

Parties’ objection to the Romspen claims is overruled.

Conclusion

For the reasons stated above, the Plan must be confirmed, the equitable

subordination and recharacterization efforts must fail, the claim objection must fail,

and while a breach of contract was established, awarding appropriate remedies for

that breach will require further briefing.

The Court wishes to express, again, its appreciation for the professionalism of

the lawyers and support staff who were involved with the trial of this important

matter. The Court recognizes the demands that such trials put on everyone, both

professionally and personally, and appreciates the frank (and occasionally fierce) but

cooperative and courteous demeanor exhibited in the courtroom.

# # #

219 In re Palms at Water’s Edge, L.P., 334 B.R. 853, 857 (W.D. Bankr. 2005) (citing In re

Fidelity Holding Co., Ltd., 837 F.2d 696, 698 (5th Cir.1988)).