WASHINGTON, D.C. - (Mealey's) The U.S. Supreme Court on April 2 granted the U.S. solicitor general leave to participate in oral arguments in a case in which a creditor bank argues that the Bankruptcy Code precludes confirmation of a hotel chain's Chapter 11 plan that proposes to sell collateral free and clear of liens without allowing the bank to credit bid (RadLAX Gateway Hotel LLC v. Amalgamated Bank, No. 11-166, Chapter 11, U.S. Sup.).
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).
The Bankruptcy Court agreed with Amalgamated and said the plans 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.
RadLAX argues that the Seventh Circuit ruling creates "an untenable split" with two other circuit courts: the Third Circuit and the Fifth Circuit. Moreover, RadLAX maintains that the case is the "ideal vehicle" for resolving the split because it presents a precise question of law with no material factual disputes.
Amalgamated Bank, in a brief that was filed in March, argues that not only does 11 U.S. Code Section 1129(b) preclude confirmation of the Chapter 11 plan, but depriving a secured creditor of its right to credit bid cannot be reconciled with the structure of Chapter 11.
Moreover, the bank maintains that no purpose would be served by precluding credit bidding when property is sold free and clear of liens.
Credit bidding preserves the settled expectations of secured creditors when they bargain for a security interest, and it furthers the policy of maximizing the value of the bankruptcy estate, the bank contends.
The U.S. solicitor general filed a motion on March 9 seeking permission to participate in oral arguments.
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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