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SUPREME COURT DOCKET REPORT

Mayer Brown's Supreme Court and Appellate Practice Group distributes a Docket Report whenever the Supreme Court grants certiorari in a case of interest to the business community. We also email the Docket Report to our subscribed members and if you don't already subscribe to the Docket Report and would like to, please click here.

October Term 2011 - December 12, 2011

December 12, 2011

Today, the Supreme Court granted certiorari in one case of interest to the business community:


Bankruptcy—“Credit Bidding”

Section 1129(b)(2)(A)(iii) of the Bankruptcy Code allows a court to find that a chapter 11 “cramdown” plan is “fair and equitable” to an objecting class of secured creditors if the plan provides for the realization by such holders of the “indubitable equivalent” of their claims. Section 1129(b)(2)(A)(ii), through reference to Section 363(k), permits the sale of collateral free and clear of liens if secured creditors are allowed to “credit bid”—that is, to bid the value of their claim in an auction of the collateral. Today the Supreme Court granted certiorari in RadLAX Gateway Hotel, LLC v. Amalgamated Bank, No. 11-166, to decide whether secured creditors are guaranteed the right to credit bid in Chapter 11 auction sales.

The Court’s answer to this question could affect the leverage that objecting creditors have in Chapter 11 reorganizations and is of particular importance in light of debtors’ expanding use of Chapter 11 to sell assets free and clear of liens.

The debtors, petitioners in the Supreme Court, proposed to auction a Los Angeles hotel and parking garage, subject to an initial stalking-horse bid. The procedure would not have allowed the secured lenders that financed the construction of the property to credit bid their claims. The administrative agent for the lending group, respondent in the Supreme Court, objected. The Bankruptcy Court for the Northern District of Illinois sustained the objection but certified the question for immediate appeal to the Seventh Circuit, which affirmed.

The statutory-interpretation question depends on whether the use of “or” in Section 1129(b)(2)(A) means that any plan may be found “fair and equitable” if it satisfies any one of subsections (i), (ii), and (iii). Under subsection (i), a plan may provide that secured lenders will keep the full value of their liens and receive a stream of payments meeting certain requirements. Under subsection (ii), a plan may provide that the collateral will be sold free and clear of existing liens and the secured creditor given the proceeds, but the secured creditor must be given the right to credit bid. Under subsection (iii), a plan may provide that holders of secured claims will realize the “indubitable equivalent” of their claims. 

The Seventh Circuit held that a plan may not be found “fair and equitable” merely because it satisfies the “indubitable equivalent” requirement of subsection (iii). Allowing a plan to “dispose of encumbered assets in the ways discussed in Subsections (i) and (ii),” even though the plan “fail[s] to meet those Subsections’ requirements,” would create a conflict among the subsections, the court said, and allow the general “indubitable equivalent” standard to subsume the more specific provisions governing sales. 651 F.3d 642, 652. Under the Seventh Circuit’s reading of the statute, plans can qualify as “fair and equitable” under subsection (iii) only if they “propose[] disposing of assets in ways that are not described in Subsections (i) and (ii).” Ibid. The Seventh Circuit acknowledged that its decision created a conflict with decisions of the Third and Fifth Circuits. 

Absent extensions, amicus briefs in support of the petitioners will be due on February 2, 2012, and amicus briefs in support of the respondent will be due on March 5, 2012. Any questions about this case should be directed to Dan Himmelfarb (+1 202 263 3035) in our Washington, DC office.


Today the Court also invited the Solicitor General to file a brief expressing the views of the United States in the following related cases of interest to the business community:

Decker v. Northwest Envtl. Defense Center, No. 11-338, and Georgia-Pacific West v. Northwest Envtl. Defense Center, No. 11-347: The questions presented in No. 11-338 are (1) whether the Ninth Circuit erred when it held that a citizen may bypass judicial review of a National Pollutant Discharge Elimination System (NPDES) permitting rule and instead challenge the validity of the rule in a citizen suit to enforce the Clean Water Act (CWA) and (2) whether the Ninth Circuit erred when it held that stormwater from logging roads is industrial stormwater under the CWA and rules of the Environmental Protection Agency (EPA), even though EPA has determined that it is not industrial stormwater. The question presented in No. 11-347 is whether the Ninth Circuit should have deferred to EPA’s longstanding position that channeled runoff from forest roads does not require a permit, and erred when it mandated that EPA regulate such runoff as industrial stormwater subject to NPDES. Mayer Brown represents the petitioners in No.11-347.


Mayer Brown's Supreme Court & Appellate practice distributes a Docket Report whenever the Supreme Court grants certiorari in a case of interest to the business community and distributes a Docket Report-Decision Alert whenever the Court decides such a case. We hope you find the Docket Reports and Decision Alerts useful, and welcome feedback on them (which should be addressed to Andrew Tauber, their general editor, at atauber@mayerbrown.com or +1 202 263 3324).

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Mayer Brown's Supreme Court & Appellate practice distributes a Docket Report whenever the Supreme Court grants certiorari in a case of interest to the business community and distributes a Docket Report-Decision Alert whenever the Court decides such a case. We hope you find the Docket Reports and Decision Alerts useful, and welcome feedback on them (which should be addressed to Andrew Tauber, their general editor, at atauber@mayerbrown.com or +1 202 263 3324).

Mayer Brown Supreme Court Docket Reports provide information and comments on legal issues and developments of interest to our clients and friends. They are not a comprehensive treatment of the subject matter covered and are not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed. 



 
 
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