May 29, 2012

Supreme Court Decides RadLAX Gateway Hotel LLC v. Amalgamated Bank

On May 29, 2012, the U.S. Supreme Court decided RadLAX Gateway Hotel LLC v. Amalgamated Bank, No. 11-166, holding that a Chapter 11 debtor may not obtain confirmation of a "cramdown" plan under 11 U.S.C. § 1129(b)(2)(a) that provides for the sale of collateral free and clear of a secured creditor's lien but that does not permit the creditor to credit-bid at the asset sale (that is, offset the purchase price by the amount of the debt owed).

In 2007, petitioners RadLAX Gateway Hotel, LLC and RadLAX Gateway Deck, LLC ("RadLAX") financed the purchase and renovation of the Radisson Hotel at Los Angeles International Airport and construction of a parking structure. Respondent Amalgamated Bank ("Amalgamated") is trustee for the investment fund that provided the financing. As part of the financing, Amalgamated received a blanket lien on all of RadLAX's assets. When the project proved to be more expensive than anticipated, and when RadLAX was unable to secure additional funding, it filed for Chapter 11 bankruptcy protection. In the bankruptcy, RadLAX proposed to auction substantially all of its assets to fund its proposed bankruptcy plan, which primarily involved paying Amalgamated. Under the proposed plan, however, Amalgamated would not be permitted to credit-bid for the property secured by its loan. Knowing Amalgamated would object on this basis, RadLAX sought approval as a cramdown plan under § 1129(b)(2)(A).  The Bankruptcy Court for the Northern District of Illinois rejected the cramdown bid, holding that the proposed asset sale did not comply with § 1129(b)(2)(A). On a certified direct appeal, the Seventh Circuit affirmed the Bankruptcy Court, holding that § 1129(b)(2)(A) does not permit debtors to sell an encumbered asset free and clear of a lien without permitting the lienholder to credit-bid.

The Supreme Court unanimously affirmed the Seventh Circuit. Because the requirements to approve a Chapter 11 plan over the objection of a secured creditor are set out by statute, the Court applied a well-established canon of statutory interpretation to resolve whether Amalgamated was entitled to credit-bid. Section 1129(b)(2)(A)(ii) is a specific provision that sets out requirements for selling collateral free of liens and provides a creditor with a right to credit-bid on secured collateral. RadLAX, however, sought to use § 1129(b)(2)(A)(iii), a more general provision providing a creditor with a right only to the "indubitable equivalent" of its claim in cash generated by the sale with no right to credit-bid. The Court found that even though clause (iii) literally could apply, clause (ii) is more specific, and applying clause (iii) would permit what clause (ii) specifically forbids.  The Court applied a common precept of statutory construction to hold that the specific provision in clause (ii) governed the more general provision in clause (iii) and affirmed that Congress had targeted a specific problem with a specific solution. Because the statute is unambiguous, the Court saw no need to engage in an examination of the purposes of the Bankruptcy Code or the merits of credit-bidding.

Justice Scalia delivered the opinion of the Court in which all other members joined except Justice Kennedy, who took no part in the decision.

Download Opinion of the Court

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