Term: 2011
Docket: 11-166
Radlax Gateway Hotel, Llc, Et Al. v. Amalgamated Bank
- Pro
11-166 RADLAX GATEWAY HOTEL V. AMALGAMATED BANK DECISION BELOW: 651 F.3d 642 CERT. GRANTED 12/12/2011 QUESTION PRESENTED: Section 1129(b)(2)(A) of the Bankruptcy Code sets forth three alternative standards for determining if a chapter 11 plan is "fair and equitable" with respect to an objecting class of secured creditors. Petitioners, the Debtors, proposed a chapter 11 plan involving the sale of assets free of liens that satisfies one of these standards by providing their secured lender with the "indubitable equivalent" of its claim pursuant to Section 1129(b)(2)(A)(iii). In an appeal certified directly from the bankruptcy court, the Seventh Circuit held that the Debtors could only satisfy the statute by allowing their secured creditor to bid its claim in lieu of cash (i.e., credit bid) at the sale pursuant to Section 1129(b )(2)(A)(ii). This holding directly conflicts with the Third Circuit's decision in In re Philadelphia Newspapers, 599 F.3d 298 (3d Cir. 2010), and the Fifth Circuit's decision in Scotia Pacific Co., LLC v. Official Unsecured Creditors' Comm. (In re Pacific Lumber Co.), 584 F.3d 229 (5th Cir. 2009). The question presented is: Whether a debtor may pursue a chapter 11 plan that proposes to sell assets free of liens without allowing the secured creditor to credit bid, but instead providing it with the indubitable equivalent of its claim under Section 1129(b )(2)(A)(iii) of the Bankruptcy Code. LOWER COURT CASE NUMBER: 10-3597, 10-3598
The U.S. Supreme Court case RadLAX Gateway Hotel, LLC v. Amalgamated Bank in 2011 revolved around the issue of whether a debtor may pursue a Chapter 11 plan that proposes to sell assets free of liens without allowing the secured creditor to credit bid, but instead providing it with the indubitable equivalent of its claim under Section 1129(b)(2)(A) of the Bankruptcy Code. The court ruled unanimously in favor of Amalgamated Bank, holding that debtors (in this case RadLAX Gateway Hotel and others) cannot confirm a cramdown plan that provides for selling substantially all their property at an auction open only to bidders who do not hold liens on such property. This decision reinforced creditors' rights by ensuring they can credit-bid when their collateral is being sold under a bankruptcy reorganization plan.
In the dissenting opinion for RadLAX Gateway Hotel, LLC v. Amalgamated Bank, Justice Scalia disagreed with the majority's interpretation of Section 1129(b)(2)(A) of the Bankruptcy Code. He argued that this section should not be read to prevent a debtor from proposing a plan that provides secured creditors with an indubitable equivalent of their claim but does not allow them to credit bid at an auction sale. According to him, such reading is inconsistent with both statutory text and structure as well as bankruptcy practice prior to enactment of this provision in 1978. Furthermore, he criticized the majority’s reliance on canons of construction like “the specific governs the general” or “surplusage canon,” stating they are unreliable guides for interpreting statutes and often lead courts astray.
