U.S. High Court Will Hear Chapter 11 Case Dealing With Secured Creditor Rights

U.S. High Court Will Hear Chapter 11 Case Dealing With Secured Creditor Rights

WASHINGTON, D.C. - (Mealey's) The U.S. Supreme Court on Dec. 12 said it will hear a case in which a debtor hotel chain is seeking to pursue Chapter 11 bankruptcy in which it proposes to sell its assets free of liens without allowing the secured creditor to credit bid.  Rather, the debtor is offering to provide the creditor with the "indubitable equivalent" of its claim (RadLAX Gateway Hotel LLC v. Amalgamated Bank, No. 11-166, Chapter 11, U.S. Sup.). 

(Petition.  Document #80-111221-015C.  Opposition.  Document #80-111221-016B.) 

RadLAX Gateway Hotel LLC filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Northern District of Illinois. 

The Bankruptcy Court ordered the joint administration of the RadLAX bankruptcy with the Chapter 11 case of River Road Hotel Partners LLC. 

Creditor Amalgamated Bank objected to the reorganization plans of both debtors on grounds that the plans would impair the bank's  interests.  The bank also contended that under 11 U.S. Code Section 1129(b)(2)(A), the reorganization plans could not be confirmed. 

The Bankruptcy Court agreed with Amalgamated and said the plans could not be confirmed. 

The Bankruptcy Court certified a direct appeal to the Seventh Circuit U.S. Court of Appeals.  The Seventh Circuit ruled that the Bankruptcy Court correctly interpreted 11 U.S. Code Section 1129(b)(2)(A). 

RadLAX alone appealed to the U.S. Supreme Court. 

RadLAX argued that the ruling of the Seventh Circuit creates "an untenable split" with two other U.S. Circuit Courts of Appeal:  the Third Circuit and the Fifth Circuit.  Moreover, RadLAX maintained that the case is the "ideal vehicle" for resolving the split because it presents a precise question of law with no material factual disputes. 

Furthermore, the question presented regarding secured creditor protection is central to nearly every Chapter 11 bankruptcy case involving the sale of collateral, RadLAX argued. 

Amalgamated argued that the Supreme Court should have denied certiorari because the petition presents "only a shallow and academic disagreement between" the circuit courts.  Moreover, the bank contended that review was unwarranted because resolution of the case will not affect the outcome of most disputes. 

RadLAX is represented by David M. 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 office in New York, John W. Costello of Edwards Wildman Palmer in Chicago and Deanne E. Maynard, Brian R. Matsui and Marc A. Hearron of Morrison & Foerster in Washington. 

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  • 12-23-2011

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