Radlax Gateway Hotel, LLC v. Amalgamated Bank

• Decision Date: 29 May 2012
• Docket Number: No. 11–166.,11–166.
• Citation: 182 L.Ed.2d 967,566 U.S. 639,132 S.Ct. 2065
• Parties: RADLAX GATEWAY HOTEL, LLC, et al., Petitioners v. AMALGAMATED BANK.
• Court: U.S. Supreme Court

566 U.S. 639

132 S.Ct. 2065

182 L.Ed.2d 967

RADLAX GATEWAY HOTEL, LLC, et al., Petitioners

v.AMALGAMATED BANK.

No. 11–166.

Supreme Court of the United States

Argued April 23, 2012.

Decided May 29, 2012.

David M. Neff, Chicago, IL, for Petitioners.

Deanne E. Maynard, Washington, DC, for Respondent.

Sarah E. Harrington, for the United States as amicus curiae, by special leave of the Court, supporting the Respondent.

David M. Neff, Counsel of Record, Brian A. Audette, Eric E. Walker, Perkins Coie LLP, Chicago, IL, for Petitioners.

Adam A. Lewis, Morrison & Foerster LLP, San Francisco, CA, Norman S. Rosenbaum, Morrison & Foerster LLP, New York, NY, Deanne E. Maynard, Counsel of Record, Brian R. Matsui, Marc A. Hearron, Morrison & Foerster LLP, Washington, DC, for Respondent, Amalgamated Bank.

Justice SCALIA delivered the opinion of the Court.

We consider whether a Chapter 11 bankruptcy plan may be confirmed over the objection of a secured creditor pursuant to 11 U.S.C. § 1129(b)(2)(A) if the plan provides for the sale of collateral free and clear of the creditor's lien, but does not permit the creditor to "credit-bid" at the sale.

I

In 2007, petitioners RadLAX Gateway Hotel, LLC, and RadLAX Gateway Deck, LLC (hereinafter debtors), purchased the Radisson Hotel at Los Angeles International Airport, together with an adjacent lot on which the debtors planned to build a parking structure. To finance the purchase, the renovation of the hotel, and construction of the parking structure, the debtors obtained a $142 million loan from Longview Ultra Construction Loan Investment Fund, for which respondent Amalgamated Bank (hereinafter creditor or Bank) serves as trustee. The lenders obtained a blanket lien on all of the debtors' assets to secure the loan.

Completing the parking structure proved more expensive than anticipated, and within two years the debtors had run out of funds and were forced to halt construction.

By August 2009, they owed more than $120 million on the loan, with over $1 million in interest accruing every month and no prospect for obtaining additional funds to complete the project. Both debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code.

A Chapter 11 bankruptcy is implemented according to a "plan," typically proposed by the debtor, which divides claims against the debtor into separate "classes" and specifies the treatment each class will receive. See 11 U.S.C. § 1123. Generally, a bankruptcy court may confirm a Chapter 11 plan only if each class of creditors affected by the plan consents. See § 1129(a)(8). Section 1129(b) creates an exception to that general rule, permitting confirmation of nonconsensual plans—commonly known as "cramdown" plans—if "the plan does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan." Section 1129(b)(2)(A), which we review in further depth below, establishes criteria for determining whether a cramdown plan is "fair and equitable" with respect to secured claims like the Bank's.

In 2010, the RadLAX debtors submitted a Chapter 11 plan to the United States Bankruptcy Court for the Northern District of Illinois. The plan proposed to dissolve the debtors and to sell substantially all of their assets pursuant to procedures set out in a contemporaneously filed "Sale and Bid Procedures Motion." Specifically, the debtors sought to auction their assets to the highest bidder, with the initial bid submitted by a "stalking horse"—a potential purchaser who was willing to make an advance bid of $47.5 million.¹ The sale proceeds would be used to fund the plan, primarily by repaying the Bank. Of course the Bank itself might wish to obtain the property if the alternative would be receiving auction proceeds that fall short of the property's full value. Under the debtors' proposed auction procedures, however, the Bank would not be permitted to bid for the property using the debt it is owed to offset the purchase price, a practice known as "credit-bidding." Instead, the Bank would be forced to bid cash. Correctly anticipating that the Bank would object to this arrangement, the debtors sought to confirm their plan under the cramdown provisions of § 1129(b)(2)(A).

The Bankruptcy Court denied the debtors' Sale and Bid Procedures Motion, concluding that the proposed auction procedures did not comply with § 1129(b)(2)(A)'s requirements for cramdown plans. In re River Road Hotel Partners, LLC, Case No. 09 B 30029, 2010 WL 6634603 (N.D.Ill., Oct. 5, 2010), App. to Pet. for Cert. 40a. The Bankruptcy Court certified an appeal directly to the United States Court of Appeals for the Seventh Circuit. That court accepted the certification and affirmed, 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. River Road Hotel Partners, LLC, et al. v. Amalgamated Bank, 651 F.3d 642 (2011). We granted certiorari. 565 U.S. ––––, 132 S.Ct. 845, 181 L.Ed.2d 547 (2011).

II

A

A Chapter 11 plan confirmed over the objection of a "class of secured claims"

must meet one of three requirements in order to be deemed "fair and equitable" with respect to the nonconsenting creditor's claim. The plan must provide:

"(i)(I) that the holders of such claims retain the liens securing such claims, whether the property subject to such liens is retained by the debtor or transferred to another entity, to the extent of the allowed amount of such claims; and (II) that each holder of a claim of such class receive on account of such claim deferred cash payments totaling at least the allowed amount of such claim, of a value, as of the effective date of the plan, of at least the value of such holder's interest in the estate's interest in such property;

"(ii) for the sale, subject to section 363(k) of this title, of any property that is subject to the liens securing such claims, free and clear of such liens, with such liens to attach to the proceeds of such sale, and the treatment of such liens on proceeds under clause (i) or (iii) of this subparagraph; or

"(iii) for the realization by such holders of the indubitable equivalent of such claims." 11 U.S.C. § 1129(b)(2)(A).

Under clause (i), the secured creditor retains its lien on the property and receives deferred cash payments. Under clause (ii), the property is sold free and clear of the lien, "subject to section 363(k)," and the creditor receives a lien on the proceeds of the sale. Section 363(k), in turn, provides that "unless the court for cause orders otherwise the holder of such claim may bid at such sale, and, if the holder of such claim purchases such property, such holder may offset such claim against the purchase price of such property"—i.e., the creditor may credit-bid at the sale, up to the amount of its claim.² Finally, under clause (iii), the plan provides the secured creditor with the "indubitable equivalent" of its claim.

The debtors in this case have proposed to sell their property free and clear of the Bank's liens, and to repay the Bank using the sale proceeds—precisely, it would seem, the disposition contemplated by clause (ii). Yet since the debtors' proposed auction procedures do not permit the Bank to credit-bid, the proposed sale cannot satisfy the requirements of clause (ii).³ Recognizing this problem, the debtors instead seek plan confirmation pursuant to clause (iii), which—unlike clause (ii)—does not expressly foreclose the possibility of a sale without credit-bidding. According to the debtors, their plan can satisfy clause (iii) by ultimately providing the Bank with the "indubitable equivalent" of its secured claim, in the form of cash generated by the auction.

We find the debtors' reading of § 1129(b)(2)(A) —under which clause (iii) permits precisely what clause (ii) proscribes—to be hyperliteral and contrary to common sense. A well established canon of statutory interpretation succinctly captures the problem: "[I]t is a commonplace of statutory construction that the specific governs the general." Morales v. Trans World Airlines, Inc., 504 U.S. 374, 384, 112 S.Ct. 2031, 119 L.Ed.2d 157 (1992). That is particularly true where, as in § 1129(b)(2)(A), "Congress has enacted a comprehensive scheme and has deliberately targeted specific problems with specific solutions." Varity Corp. v. Howe, 516 U.S. 489, 519, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996) (THOMAS, J., dissenting); see also HCSC–Laundry v. United States, 450 U.S. 1, 6, 101 S.Ct. 836, 67 L.Ed.2d 1 (1981)(per curiam) (the specific governs the general "particularly when the two are interrelated and closely positioned, both in fact being parts of [the same statutory scheme]").

The general/specific canon is perhaps most frequently applied to statutes in which a general permission or prohibition is contradicted by a specific prohibition or permission. To eliminate the contradiction, the specific provision is construed as an exception to the general one. See, e.g., Morton v. Mancari, 417 U.S. 535, 550–551, 94 S.Ct. 2474, 41 L.Ed.2d 290 (1974). But the canon has full application as well to statutes such as the one here, in which a general authorization and a more limited, specific authorization exist side-by-side. There the canon avoids not contradiction but the superfluity of a specific provision that is swallowed by the general one, "violat[ing] the cardinal rule that, if possible, effect shall be given to every clause and part of a statute." D. Ginsberg & Sons, Inc. v. Popkin, 285 U.S. 204, 208, 52 S.Ct. 322, 76 L.Ed. 704 (1932). The terms of the specific authorization must be complied with. For example, in the last cited case a provision of the Bankruptcy Act prescribed in great detail the procedures governing the arrest and detention of bankrupts about to leave the district in order to avoid examination. The Court held that those prescriptions could not be avoided by relying upon a general provision...