Radlax Gateway Hotel, LLC v. Amalgamated Bank
566 U.S. 639, 2012 U.S. LEXIS 3944, 182 L. Ed. 2d 967 (2012)
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Rule of Law:
When a Chapter 11 bankruptcy plan proposes the sale of a secured creditor's collateral free and clear of liens, the plan cannot be confirmed over the creditor's objection under the general 'indubitable equivalent' provision of 11 U.S.C. § 1129(b)(2)(A)(iii) if it prohibits the creditor from credit-bidding at the sale, as that specific scenario is governed by § 1129(b)(2)(A)(ii), which requires the right to credit-bid.
Facts:
- In 2007, RadLAX Gateway Hotel, LLC, and RadLAX Gateway Deck, LLC (debtors) purchased the Radisson Hotel at Los Angeles International Airport.
- To finance the purchase and subsequent construction, the debtors obtained a $142 million loan, for which Amalgamated Bank (creditor) serves as trustee.
- The loan was secured by a blanket lien on all of the debtors' assets, including the hotel property.
- Construction of a planned parking structure proved more expensive than anticipated, causing the debtors to run out of funds and halt the project.
- By August 2009, the debtors owed more than $120 million on the loan and had no prospect of obtaining additional funding.
Procedural Posture:
- The RadLAX debtors filed voluntary petitions for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Northern District of Illinois.
- The debtors proposed a Chapter 11 plan and filed a 'Sale and Bid Procedures Motion' to sell substantially all of their assets at auction, but their proposed procedures did not permit the secured creditor, Amalgamated Bank, to credit-bid.
- The Bankruptcy Court denied the debtors' motion, concluding the proposed procedures did not comply with § 1129(b)(2)(A)'s requirements for cramdown plans.
- The Bankruptcy Court certified a direct appeal to the U.S. Court of Appeals for the Seventh Circuit.
- The Seventh Circuit (the intermediate appellate court) affirmed the Bankruptcy Court's decision, holding that § 1129(b)(2)(A) does not permit a debtor to sell an encumbered asset free of a lien without permitting the lienholder to credit-bid.
- The U.S. Supreme Court granted certiorari.
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Issue:
Does § 1129(b)(2)(A) of the Bankruptcy Code permit a Chapter 11 debtor to sell a secured creditor's collateral free and clear of liens under a cramdown plan without allowing the creditor to credit-bid, by invoking the general 'indubitable equivalent' provision of clause (iii) instead of the specific sale provision of clause (ii)?
Opinions:
Majority - Justice Scalia
No. A Chapter 11 plan proposing to sell collateral free of liens cannot be confirmed by providing the 'indubitable equivalent' of the secured claim under clause (iii) if it denies the creditor the right to credit-bid. The well-established canon of statutory interpretation that 'the specific governs the general' dictates this result. Clause (ii) of § 1129(b)(2)(A) specifically addresses the sale of collateral free and clear of liens and expressly requires that such a sale be 'subject to section 363(k),' which grants secured creditors the right to credit-bid. Clause (iii) is a broad, residual provision. Allowing a debtor to use the general language of clause (iii) to achieve what is specifically regulated by clause (ii) but without complying with its conditions would render clause (ii) superfluous. The structure of the statute presents three distinct options for cramdown plans, not a general catch-all that nullifies a specific requirement. Thus, a plan involving the sale of collateral free of liens must satisfy the requirements of clause (ii), including the right to credit-bid.
Analysis:
This decision significantly strengthens the position of secured creditors in Chapter 11 bankruptcy proceedings involving asset sales. By rejecting a 'hyperliteral' reading of the statute, the Court prevents debtors from strategically using cash-only auctions to potentially suppress the sale price of collateral and strip secured creditors of a key protection. The ruling establishes that the specific procedural right to credit-bid cannot be circumvented by appealing to the more general 'indubitable equivalent' standard. This promotes predictability in cramdown plans and reinforces the principle that specific statutory provisions will control over general ones, limiting judicial discretion to approve creative but non-compliant repayment plans.
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