WASHINGTON, D.C. - (Mealey's) The U.S. Supreme Court
today heard oral arguments in a dispute between a Chapter 11 debtor company and
a creditor bank as to whether a secured creditor is permitted to credit-bid
while the debtor company's collateral is being sold as part of the
reorganization plan (RadLAX Gateway Hotel LLC v. Amalgamated Bank, No.
11-166, Chapter 11, U.S. Sup.; See 03/21/12).
11 U.S. Code Section 1129
RadLAX Gateway Hotel LLC filed for Chapter 11 bankruptcy
in the U.S. Bankruptcy Court for the Northern District of Illinois.
Creditor Amalgamated Bank opposed RadLAX's Chapter 11 reorganization plan on
grounds that it was unconfirmable pursuant to 11 U.S. Code Section 1129(b)(2)(A)
because it was not fair and equitable to secured creditors.
The Bankruptcy Court agreed with Amalgamated and said the
plan could not be confirmed. A panel of the Seventh Circuit U.S. Court of
Appeals affirmed the Bankruptcy Court's ruling, and RadLAX appealed to the
Supreme Court on Aug. 5.
In its petition, RadLAX argued that the Seventh Circuit
ruling creates "an untenable split" with two other circuit
courts: the Third Circuit and the Fifth Circuit.
At oral arguments, RadLAX's attorney David Neff, said
that under 11 U.S. Code Section 1129(b)(2)(A), the reorganization plan was
valid and the secured creditor did not have to be allowed to credit-bid.
Specifically, Neff said the reorganization plan must
provide the creditor with the "indubitable equivalent" of its secured
Justice Samuel Alito questioned Neff, however, on how it
is decided whether something really is the indubitable equivalent of an asset.
Neff said that the indubitable equivalent would be
determined at the time the plan is confirmed and after a sale of the assets has
Deanne E. Maynard, arguing for the bank, said that when a
Chapter 11 bankruptcy plan is going to cram down a plan over the objection of a
secured creditor, 11 U.S. Code Section 1129(b)(2)(A) gives the secured creditor
the ability to protect those rights regardless of the proposed treatment of its
Specifically, when the plan proposes, as here, to sell
the collateral free and clear of the secured creditor's liens and give the
secured creditor nothing but the proceeds from that sale, the secured creditor
may bid what it is owed in the absence of cause to preclude it, Maynard said.
Justice Sonia Sotomayor asked Maynard what the purpose
was regarding a sale of the debtor's assets if the secured creditor must always
get a higher value of the sale price through the process of credit bidding.
Maynard said that in the case at hand where a hotel is
the asset for sale, many secured creditors don't want to run a hotel and
parking garage; therefore, the secured creditors are only interested in
maximizing value of the asset upon resale.
RadLAX is represented by Neff, Brian A. Audette and Eric
E. Walker of Perkins Coie in Chicago.
Amalgamated is represented by Adam A. Lewis of Morrison & Foerster in San
Francisco, Norman S. Rosenbaum of the firm's New York office, John W. Costello
of Edwards Wildman Palmer in Chicago and Maynard, Brian R. Matsui and Marc A.
Hearron of Morrison & Foerster in Washington.
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