BFP v. Resolution Trust Corporation – Oral Argument – December 07, 1993

Media for BFP v. Resolution Trust Corporation

Audio Transcription for Opinion Announcement – May 23, 1994 in BFP v. Resolution Trust Corporation

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William H. Rehnquist:

We’ll hear argument next in Number 92,1370, BFP v. Resolution Trust Corporation.

Mr. Woolsey, you may proceed.

Roy B. Woolsey:

Mr. Chief Justice, Justices, may it please the Court:

In this case, the Ninth Circuit court ruled that in the cases where there is no fraud or collusion in a foreclosure sale, the high bid irrebuttably presumes… is presumed to be, irrebuttably, the reasonably equivalent value.

This proposition, Your Honors, is preposterous.

We must look at actual values and compare them.

Now, counsel have agreed with me on interpretation of statutes that we first look to the statute.

There, our agreement ends, however.

From there on, we disagree violently.

I say that section 548(a)(2) of the Bankruptcy Code, which uses the language, and I quote, omitting a few irrelevant words,

“The Trustee may avoid any transfer of an interest of debtor in property if the debtor voluntarily or involuntarily received less than the reasonably equivalent value and the transfer occurred in the year before the filing of the bankruptcy. “

Now, equivalent value has got to mean equal value… equivalent means equal.

We’re not talking about a peppercorn that would support… as consideration, support a contract.

We’re talking about a comparison of values.

The only way you can compare–

Mr. Woolsey–

Roy B. Woolsey:

–Pardon me.

Ruth Bader Ginsburg:

–may I deflect you for a moment just to clarify for me, what is the end result that you’re seeking?

Now, you’re not seeking any more to avoid this transfer, but you are seeking what and from whom?

Roy B. Woolsey:

Oh, under 550 of the United States Code, under the Bankruptcy Code we are entitled either to rescind, which we can’t do because it’s gone to innocent third-party transferees, or recover the value of the property.

In this case, the recovery I think would be limited to the difference between what the buyers put into the property and what they got out of it on their resale.

If they hadn’t resold and we were to avoid the transfer and get it back into the estate of the bankruptcy, then, of course, they would have a lien for their expenditures on the property.

Ruth Bader Ginsburg:

And you are seeking this from Osborne, or who are you seeking it from?

Roy B. Woolsey:

Well, from Osborne and the other buyers we are entitled to that.

Now, from the Imperial Savings and Loan we have a different matter.

They were the holding company that held the trustee under the deed of trust, and they benefited by getting a trustee’s fees.

There may have been other benefits.

We didn’t go into the facts of the other benefits in the case because as a matter of fact the judge sustained their motion for failure to state a cause of action, so there was no fact hearing on the measure of damages.

The judge in the bankruptcy case that we take the appeals from and this cert is from held that he was bound by the then, he thought in effect, bankruptcy appellate panel decision in Madrid, the 1981 or ‘2 case, and he felt that controlled him.

He had written the decision cited by my opponents in that Kachanizadeh case where he said if he had this to decide initially he would come to a different result, but he felt bound by the bankruptcy appellate panel and on that basis and one other basis affirmed… I mean–

Ruth Bader Ginsburg:

If you were just to put–

Roy B. Woolsey:

–Pardon–

Ruth Bader Ginsburg:

–in a nutshell what relief you think you qualify for, and I understand what you said about Osborne and the other buyers.

Anything against the Federal Respondent?

Roy B. Woolsey:

–The Federal Respondent would only be to the extent of the benefits to the Federal Respondent under section 550.

They might be limited to the trustee’s fee that they got part of.

There might be other benefits.

Ruth Bader Ginsburg:

But you’re not sure about what relief you’re seeking, other than the difference between what the buyer put in and what it got on resale?

Roy B. Woolsey:

I’m sure of that against the buyers, and of course if that makes us whole, maybe we couldn’t get anything against the Imperial Savings.

Ruth Bader Ginsburg:

Okay.

Thank you.

Roy B. Woolsey:

Thank you.

Now, in statute… in this case where the code says that he can avoid any transfer, it doesn’t have to do with the type of transfer.

It doesn’t go into whether it’s a foreclosure transfer or some other type of transfer.

The question is one of comparing value, and equivalent value has got to mean equal value.

The word “reasonably” before it has to change that.

It modifies “equivalent”, so perhaps it means approximately, or nearly equivalent value, but surely we have to have that, or else the sale can be set aside.

Antonin Scalia:

Well, that depends on how you define the property, doesn’t it?

What is your proposal?

Would you accept a rule that says if it’s 70 percent of what it would have received in an ordinary real estate transaction, that that’s close enough?

Roy B. Woolsey:

I would think that it would be and that guidelines such as that might be appropriate for this Court.

Antonin Scalia:

Well, now that means that you’re willing to accept some individuation of the property in order to determine what its reasonably equivalent value is.

That is, you’re willing to say, this is property that is being sold at a foreclosure sale, right?

Roy B. Woolsey:

Mm-hmm.

Antonin Scalia:

And property that’s being sold at a foreclosure sale is only worth 70 percent of what other property is, is that not right, why you’re willing to say 70 percent?

Roy B. Woolsey:

Well, no, I wouldn’t say that it has to do with the type of sale, I would say that the word “reasonably” has modified “equivalent”, and the only thing I could think of is Congress meant something like approximately, or nearly, rather than absolutely equivalent value.

Antonin Scalia:

If you’re willing to individuate it to that extent, why not go all the way and say, this is not only property of a sort that’s being sold at a foreclosure sale, but it is property that’s being sold on a rainy Tuesday when some of the best buyers in town are on summer vacation?

Once you agree to individuate, why don’t you individuate all the way, and so whatever–

Roy B. Woolsey:

That would defeat Congress’ intent.

Congress didn’t intend to let a sale, no matter how small… there are some foreclosure sales have gone for 5 percent of value.

Roy B. Woolsey:

It seems to me we cannot say that such a sale meets the standard set forth in section 548.

Antonin Scalia:

–Suppose I say, I’m going to give you a gift.

I am the creditor, foreclosing on a piece of property.

I’ve already foreclosed.

The property is going to be sold tomorrow morning at 10:00, and I’m making you a gift of that.

How much is that gift worth that I have to pay gift tax on?

How much is it worth?

Roy B. Woolsey:

Now, I don’t understand the question.

The Court is asking if the creditor is going to bid it in and make a gift back?

Antonin Scalia:

No, no, no, no.

I’m making you a gift of property that is going to be… of the income from property that is going to be sold at a foreclosure sale tomorrow at 10:00.

How would you evaluate the value of that gift?

Wouldn’t you–

Roy B. Woolsey:

Oh–

Antonin Scalia:

–go back, after the sale occurs, and if the sale under these State conditions which are prescribed by law derives 10,000, you’d say the gift was worth 10,000, wouldn’t you?

Roy B. Woolsey:

–Well–

Antonin Scalia:

It is property that is subject to foreclosure under certain State rules–

Roy B. Woolsey:

–Well, of course–

Antonin Scalia:

–and whatever it fetches under those rules has to be the fair value of that particularly individuated property.

Roy B. Woolsey:

–No, I don’t think that’s the case.

That argument would destroy the application of 548 to any transaction, it seems to me.

Antonin Scalia:

Oh, no, if you didn’t follow the State rules, if it were a collusive sale, then 548 would continue to apply, wouldn’t it?

Roy B. Woolsey:

Well, I think 548 applies to foreclosures as it does any other sale, because the foreclosure market is not a market that is designed to determine accurate value, and some of the cases we cited say it doesn’t evidence value.

The foreclosure price may be any price.

It doesn’t relate to value, and the Congress has said, if it doesn’t… if it isn’t at least the reasonably equivalent value, it can be set aside.

Reasonably equivalent can’t be based on the transaction following State law.

This is based on an act of Congress that has set forth a Federal statute and a Federal standard.

As said in the Butner case in the footnotes, and said in some of the other cases, 547, on prepetition preferences, 548 on prepetition sales, 549 on postpetition sales, all have to meet a standard, and it’s a Federal standard, and the State standard doesn’t determine it.

I don’t think the State standard here, the fact that you comply with the State standard doesn’t determine value.

The State has a foreclosure system in order to protect a creditor who can foreclose.

David H. Souter:

Of course, your answer, I take it, would be different if the State system imposed a fiduciary duty on the foreclosing mortgagee, because in that case the mortgagee would be bound to take whatever steps would be necessary to realize the highest possible value, and I think your argument is that the State systems characteristically don’t impose any such requirement.

Roy B. Woolsey:

That is true of State systems characteristically.

I must confess, there’s one case cited by my adversary, the Bank of Seoul v. Marcione, which held that the trustee does have some duties in that respect, and for violation of that duty a sale could be set aside under State law, but I don’t think the State law is the test here.

The test here is Federal law and what happened in this particular transaction, and in this particular transaction, a sale of less than 70 percent was not a reasonably equivalent value, is our position.

David H. Souter:

But if you had a… we’ll call it a fiduciary State, and the fiduciary standard was in fact satisfied, then it would be odd to construe the Federal statute to require any different obligation.

Wouldn’t that be fair to say?

Roy B. Woolsey:

I don’t think that is, Your Honor.

I think the Federal Government has set forth a standard that applies in bankruptcy.

David H. Souter:

No, but the is reasonably equivalent value–

Roy B. Woolsey:

Yes.

David H. Souter:

–and I take it that you’re ready to admit that what is reasonably equivalent takes into consideration the circumstances of the sale, not only the fact that it’s a foreclosure sale, but the fact that the foreclosing party may or may not make efforts to get in real buyers, there may or may not be a real market for this property, and so on.

All I was suggesting was that given the scope of what the term reasonable implies here, if we were dealing with a State that did impose a fiduciary duty, an obligation to get top dollar and to take whatever steps were necessary to take top dollar, isn’t it likely to be the case that satisfying that standard would also satisfy the standard in the Federal act of obtaining what is reasonably equivalent?

Roy B. Woolsey:

No.

I think the answer to that is no.

The primary consideration here is comparing this, equivalent value… we’re comparing.

We’re comparing the value, not the circumstances.

The circumstances are secondary to comparing the value.

It is true that cases do dwell on the circumstances… the Bundles case, the–

David H. Souter:

Well, if you’re going to… if you’re going to construe the statute as implying simply a comparison of values, why do you accept 70 percent?

Roy B. Woolsey:

–Well, I don’t know that–

David H. Souter:

If I lend Justice Scalia 1 and he says I’ll give you 70 cents back, I’m going to squawk.

I’m going to say, that’s not reasonably equivalent.

Why are you willing to take 70 percent if you’re not willing to lose your 30 percent in view of the circumstances that as a practical matter would prevent you from ever realizing the 30 percent.

Roy B. Woolsey:

–Well, I would rather the standard be higher than the 70 percent.

I think the words do mean that.

David H. Souter:

Are you willing to take 70?

Roy B. Woolsey:

70 percent will cover us in this case.

We’re wiling to take 70.

But I don’t think that means that 70 percent is what Congress meant, particularly when you take into account other circumstances such as that in these sales we have advertising in compliance with the State law about a little notice, not advertising the type of property–

William H. Rehnquist:

Mr. Woolsey, do you agree that interpreting the phrase, reasonably equivalent value, the circumstances of the sale can be taken into consideration, a foreclosure sale on the one had as opposed to an arm’s length transaction where the property is finally found a buyer after 2 or 3 years?

Roy B. Woolsey:

–Well, many of the cases… most of the cases say we can take into account–

William H. Rehnquist:

I didn’t ask you what most of the cases said.

I asked you what your position is in the matter.

Roy B. Woolsey:

–Well, I think the circumstances can be considered, but I don’t know that that means the type of sale.

For instance, take this, Your Honor.

If a person has 1,000 units of something that a family needs only one of, obviously we’re talking about the price level at wholesale rather than the price level at retail.

Certainly the reasonably equivalent value is affected by the economic law of supply and demand, but I don’t think it is affected by the type of sale.

I think if the sale is a foreclosure sale and the cases–

William H. Rehnquist:

Why isn’t it effective?

You have to put the thing together rather quickly.

It doesn’t… isn’t it common knowledge that if you can hold a property on the market for several years and wait for a buyer, you’re going to get a much better price than if you have to sell it quite rapidly at what is in effect a forced sale?

Roy B. Woolsey:

–That is certainly true, Your Honor, yes.

William H. Rehnquist:

Well, why shouldn’t you be able to take that into consideration in determining reasonably equivalent?

Roy B. Woolsey:

Well, it seems to me that that violates reasonably equivalent if the value has to be low.

We have a situation here–

Ruth Bader Ginsburg:

But then you are disagreeing even with the Seventh Circuit, with Judge Ripple, who rejected the Ninth Circuit’s view but did seem to think the circumstances of the sale, including the foreclosure sale, was a relevant factor.

Roy B. Woolsey:

–I’ve got to admit that it might be relevant, but how persuasive can it be when the sale price is less than 70 percent?

I think that’s my distinction.

Ruth Bader Ginsburg:

In response to Justice Scalia before, you were making the point that unless 458(a)(2) would be meaningless.

Is that because other provisions of the Bankruptcy Act… not simply State law, but the Bankruptcy Act, will take care of the collusive sale and the sale that does not meet the formalities and the procedures required under State law?

Roy B. Woolsey:

That is certainly true.

In 548(a)(1) the… if there’s actual fraud we can set it aside, and the other section is a way of setting it aside based on the objective standard of reasonably equivalent price rather than having to go into whether or not there was collusion or fraud.

Ruth Bader Ginsburg:

And the irregularities under State law, there was another section under the Bankruptcy Code itself, I think, that would address that, so your point is that this has to have a different office than to deal with those situations.

Roy B. Woolsey:

I didn’t hear Your Honor’s last comment.

Ruth Bader Ginsburg:

Your point about 548(a)(2) is that it would be meaningless unless it had to do with something other than the formalities of State law and whether it was collusive.

Roy B. Woolsey:

Yes, Your Honor, that is correct.

That’s true.

Now, in this matter, my adversaries have gone into the purposes of the statute, policies, and legislative history.

I think where a statute is clear, we look at the statute.

We don’t need to go into the purpose of the statute.

Roy B. Woolsey:

If we do consider the purpose here, we’ve got to consider this: 548 itself is a way of bringing property back into the estate so that it will be there to be… so that all other creditors can share in it, and 547 is a way of bringing property back into the estate.

We’re in a subsection… that is, subchapter (3) of chapter 5 of the Bankruptcy Act, which provides what the estate is.

541 defines the estate, and gives you… all of the property that a person owns under State law comes into the estate, and then it contains these avoidance powers, and then the Bankruptcy Act itself has two purposes, of course, to bring property in for the creditors, let creditors share in the property, and give the debtor a fresh start after his discharge and have the exempt property.

I think the purpose of the act is clearly supported by, in this case, having the property brought back in the estate.

Now, they talk about presumptions.

Presumptions should exist only if there’s a logical nexus between the proven fact and the presumed fact.

I’ve gone into that in the brief, and I don’t have to say much more about it, but I think here you have a situation at a foreclosure sale, where some of the courts that are on my side say there’s no conclusive presumption, say that we get less money at a foreclosure sale than at other sales, therefore we can tolerate less, but I don’t think that that is true at all.

I think that that just proves that we should look with suspicion on a foreclosure sale.

The history of the law they go into, in ’38 the Bankruptcy Act got with it the power to invalidate involuntary transfers.

In 1978 we changed to include–

William H. Rehnquist:

Mr. Woolsey–

Roy B. Woolsey:

–Pardon.

William H. Rehnquist:

–if we accept your condition… position, wouldn’t one of the practical effects be to mean that you could get… a seller could get still less at a foreclosure sale because it would be relatively more easy to upset the result of a foreclosure sale–

Roy B. Woolsey:

Well, that argument had been considered by several of the text writers, and it is of some concern.

I think here, however, if the person knows that he’s going to have the sale set aside if he bids less than the reasonably equivalent value, he’s more likely to bid what is a reasonably equivalent value, particularly if the Court used guidelines such as in Durrett.

I think that we’re not going to have a situation where there’s going to be any calamity.

For instance, Texas has the rule that you can set aside the sale.

The Ninth Circuit, including California, does not.

What are real estate values doing in Texas today and what are they doing in California?

They’ve been going up in the last few months in Texas and they continue to go down in California.

There are certainly other factors that are more important in determining values than the possibility that a sale which results in a windfall to the buyer could be set aside.

This statute comes into play only when there’s a windfall.

It doesn’t come into play in most foreclosure cases.

In many foreclosure cases, it will come into effect, of course, and it should.

I don’t think there should be any attempt to harmonize State law with Federal law in this case.

I think the Butner case made that clear, a case by this Court.

There’s no financial calamity, and I think that on the fairness issue in this case, this is a special case in this one, because remember the second deedholder had cured a prior default, said he would cure the default again, asked for notice of the continuances, and it wasn’t give to us.

The debtor asked for notices of the continuances.

They thought they were going to be informed as to when the sale was, and the only reason for the delay in curing the default was that they didn’t know about title to the third person not here involved, and we won that quiet title suit.

I think I better save the rest of my time for rebuttal, unless there are more questions.

William H. Rehnquist:

–Very well, Mr. Woolsey.

Mr. Mann, we’ll hear from you.

Ronald J. Mann:

Thank you, Mr. Chief Justice, and may it please the Court:

The issue in this case is whether a bankruptcy court may invalidate a real property foreclosure sale that was properly conducted under State law and held before the bankruptcy proceeding began on the theory that the consideration received at that sale was not a reasonably equivalent value for purposes of section 548.

I would like to focus here on two points.

First, that the language of the statute, taken in context, does not require the result petitioner seeks, and second, that a rule permitting invalidation of such a sale is inconsistent with the principles this Court has articulated for construing the Bankruptcy Code.

First, the language.

The key statutory phrase is the reference to reasonably equivalent value in section 548, and in our view the key consideration in interpreting that phrase is the difference between that phrase and the phrases that Congress used in other places where it confronted valuation questions in the Bankruptcy Code.

Most commonly, it used the unqualified term, value.

In several places it referred to fair market value.

Sandra Day O’Connor:

Well, Mr. Mann, I think, you know, it’s pretty easy to conclude that reasonably equivalent value means something other than market value, but does it also mean, we accept as a per se rule that a foreclosure sale yields reasonably equivalent value, or is it a case… is it open to a case-by-case inquiry, or is it only a presumption?

The cases are all over the ball park in how to deal with this.

Ronald J. Mann:

Yes, they are, Justice O’Connor, and I think the way to go about it is to try and ascertain why Congress would have chosen the particular words that they used and then look at them through the lens that the Court has used for evaluating other similar problems the Court has faced under the Bankruptcy Code where you could interpret language in a way that would disrupt systems that the States have carefully put together for dealing with difficult policy questions.

When Congress said the value needed only to be reasonably equivalent, as you noted, it must mean that it could be something less than market value, but it seems to me that it also must have meant that the set of considerations that are relevant are going to be different than the ones that would have been relevant if you were just trying to ascertain fair market value.

Along those lines, it seems to me you have to realize that the question of value is not an objective, perfect question.

Everyone talks about how, well, he should just bid 70 percent of the fair market value.

A person bidding at a foreclosure sale can’t know exactly what the value will be determined by a judge several years later.

He’s going to bid the amount that he believes the property is worth to him, and then the bankruptcy judge task later is to determine… try to recreate a market transaction and to ascertain what would have happened if the property had been sold in a market transaction.

In our view, when the property, as it has at a foreclosure sale, has already been sold at a market transaction, there’s no reason to believe, absent Congress telling us that the Court should do that, that Congress intended for the judge to attempt to do a better job of pricing the property than the market.

Sandra Day O’Connor:

Well, what if it had been a private sale and not a foreclosure sale.

Ronald J. Mann:

The–

Sandra Day O’Connor:

How would your rule play out there?

Ronald J. Mann:

–The rule that we seek rests on several features that are really unique, I think, to real property foreclosure sales.

You start from the premise that–

Sandra Day O’Connor:

In other words, to help me out, you would not make the same argument as applied to a voluntary sale?

Ronald J. Mann:

–I think that the… I’m… that’s right.

The rule we seek rests sort of on a combination of two factors: 1) you have a market transaction that’s a public auction.

Almost all State foreclosure sales are going to bear four features.

There’s going to be a public notice.

There’s going to be a notice to the debtor so he’ll know the sale will occur.

Ronald J. Mann:

There’ll be a substantial waiting period, and then the property will be sold at an auction that is open to members of the public at which they can purchase it and it will be sold to the highest bidder.

When a State sets a–

John Paul Stevens:

Well, but there’s another important feature, too, and in most States there’s a redemption period.

Ronald J. Mann:

–I think it’s… I’m less willing to sort of agree with that type of a generalization, because redemption–

John Paul Stevens:

Well, there is in California.

Ronald J. Mann:

–There is in California, but it ends at the date of the foreclosure sale.

Right.

Ronald J. Mann:

I mean, you have a provision for redemption, but foreclosure–

John Paul Stevens:

Don’t you think that has some chilling effect on the price that you get at a foreclosure sale?

Ronald J. Mann:

–No, because the redemption ends at the foreclosure sale.

If you purchase at the foreclosure sale, there is no further right of redemption and you own the property free and clear, subject to the chance–

John Paul Stevens:

Well, what is the right of redemption, if it isn’t the right to redeem within 3 months or 6 months after the sale.

Ronald J. Mann:

–In some States there is a… it’s actually an anomaly to refer to a right of redemption that continues after foreclosure, because foreclosure typically is the foreclosing of the debtor’s rights–

John Paul Stevens:

No, but the–

Ronald J. Mann:

–but in some–

John Paul Stevens:

–transaction at which the price is determined is subject to a postponement for closing the deal until the redemption period has expired.

Ronald J. Mann:

–In some States… in some States that does occur.

In most States.

Ronald J. Mann:

I–

John Paul Stevens:

I didn’t practice in all States, I have to admit.

Ronald J. Mann:

–Right, I mean I–

John Paul Stevens:

Maybe the law’s changed a lot.

[Laughter]

Ronald J. Mann:

–I think actually that there’s a tendency for there not to be redemption periods that continue after foreclosure sales that are privately conducted under a power of sale, and given… of course, some States have those rules, though, and in a State that does have such a rule, I agree the redemption period would chill the bidding some, but you have to realize–

John Paul Stevens:

Isn’t that an explanation of why so often in these sales the mortgagee bids in the price of the indebtedness and that’s about what the price normally is, or at least, very frequently is?

It was in this case, for example, just a few thousand dollars over the indebtedness.

Ronald J. Mann:

–Well, actually, this case is… suggests something contrary to what you’re suggesting, because the mortgagor… the foreclosing lender actually bid more than the amount of the indebtedness, which it certainly had no reason to do.

John Paul Stevens:

11,000 more on a 500,000 house, or something like that?

Ronald J. Mann:

Well, the question remains whether it’s a 500,000 house, but the point I guess I would make is that the redemption period would chill the bidding a little bit, but a redemption period at least has a specific period of time that once it passes, everything is over.

The rule that is sought in this case would not work that way, because it would be a much longer period of time.

John Paul Stevens:

How much longer?

Ronald J. Mann:

Well, any bankruptcy proceeding that’s filed within 1 year of the sale, then, anytime within the bankruptcy period proceeding until a trustee is appointed… in this case, for example, a trustee was never appointed, then 2 years beyond that.

This can even go beyond the confirmation of a plan in a Chapter 11 proceeding.

Until all the payments have been made someone can come back in and file such an action, and then the worst thing, from the perspective of a person who’s trying to purchase, is that if the transaction is invalidated, unlike a redemption period, the person doesn’t get their money back.

When a redemption thing happens, the borrower comes in, he pays off the loan, and the person has their money and they can walk away.

What happens here is, all you have to get is a lien on the property of indefinite duration, and if the property has increased in value, whether because the market has changed or because you have improved it, you cannot profit from this investment, so it’s a powerful incentive not to purchase property and not to develop the property after you’ve purchased it.

In a redemption period, we really have none of those truly severe and constrictive effects, and I think that’s what makes this type of thing so troubling to commerce in land.

David H. Souter:

Mr. Mann, I have difficulty squaring your argument, I admit, with the language of the statute, but we have an easier way to assess it, and that is, the parade of horribles that you suggest should have happened in the Fifth Circuit, and yet the Fifth Circuit has had Durrett for, what is it, 12 or 13 years now, and I haven’t heard anything in any of the briefs about the destruction of the market for mortgages in the fifth Circuit.

Ronald J. Mann:

The Fifth Circuit has had Durrett for quite some time, and it is… it’s my personal experience that third parties very rarely bid at foreclosure sales that are conducted in the States.

I’ve practiced in Texas.

I haven’t conducted foreclosure sales on other sales in the Fifth Circuit, but at least in Texas, third parties rarely bid, and one of the main problems is they cannot, under any circumstances, acquire title insurance because of the effect of Durrett.

Absent Durrett, you would be able to purchase a title insurance policy, the title insurance company would carefully peruse the foreclosure documents, make sure the lawyers had filed everything in the right place and said the magic words, and then if you bought it at the sale, you could have a title policy and you would know you would own the property, but you can’t… you get a policy that has an exception, so you really can’t buy the property, and no one would be willing to make a significant commercial investment because of the risk of it being overturned, and I would submit that–

David H. Souter:

Well, I think you’re saying that in effect Durrett has not had the effect of markedly increasing the amounts that are paid on foreclosure, but I take it by the same token that you don’t touch this other subject that Durrett has not had an effect on the market, on the mortgage lending market.

Ronald J. Mann:

–Well, I think that’s hard to tell.

There’s a footnote in our brief–

David H. Souter:

But we just don’t have anything in the record, do we?

Ronald J. Mann:

–The information of the people that have conducted empirical studies, there are articles that go both ways on that particular point.

There’s a very good article that we cite in our brief… I think it’s by Professor Schill… that points out the fact that the relation between mortgagee protection laws and actual rates of lending is likely to be very small because such a small percentage of laws go into default.

There would have to be a truly dramatic difference to actually affect the rate of lending, but that’s not to suggest that the market for foreclosed property is not important.

David H. Souter:

But if that is the case, your strongest argument, or your strongest empirical argument seems to be that if you accept the petitioner’s position you’re still not going to do very much as a practical matter to benefit either mortgagors or unsecured creditors.

Ronald J. Mann:

Oh, I disagree with that strongly.

David H. Souter:

Then I misunderstand you.

Ronald J. Mann:

My point is simply that if you accept petitioner’s position, I don’t think you can say that insurance companies are going to decline to extend loans for homes in Texas.

I don’t think it will have a significant effect on the market for origination of loans.

It probably will have some effect, but for empirical reasons the number of defaulting loans is not that significant, but it will have a dramatic effect, I think, on the market for foreclosed property, and in Texas at least that’s a very significant market.

The Resolution Trust Corporation–

David H. Souter:

Do we have empirical data from the Fifth Circuit to the effect that this has happened in the last 12 years, that in fact the bid price has gone down rather than gone up as a result of the Durrett rule?

Ronald J. Mann:

–No, but it’s also by its nature the type of thing that you can’t really have empirical data because the only way to get empirical data, you’d have to sort out the effect of this particular rule from the effects of all sorts of other things going on in the real estate market, and as you know from… I think the Court knows the real estate market in major cities in Texas has been going up and down a lot during the–

David H. Souter:

But what it boils down to is, you in effect are saying to us that we’ve got to rely on our intuitive judgment that despite 13 years in the Fifth Circuit there, there isn’t any hard data to go on on that point.

Ronald J. Mann:

–No, what my point… my principle point isn’t that you should rely on your intuitive judgment, it’s that the States have made a judgment, the States have addressed this problem–

David H. Souter:

Well, that… I don’t see that at all.

The States have made judgments about, in effect, due process requirements.

Some States have made judgments about fiduciary responsibilities, but not all States have, and I gather that that in fact is not even the majority rule, so that a State that requires nothing more than the printing of a notice in fine print in the legal notice section of a newspaper for 3 successive weeks is certainly not a State which is showing any concern to maximize the amounts of money realized on foreclosure sales.

And under your rule, whether we had a fiduciary State or a 3-week notice State, the result would be exactly the same.

Whatever was realized would be reasonable equivalent, and yet the States are not all addressing the problem that we’re addressing.

Ronald J. Mann:

–I think the States have all addressed the problem one way or another, and I guess I would like to point out that this is in fact a fiduciary duty State… the case before the Court.

As we cite in the brief a case, there is a fiduciary duty imposed on the foreclosing trustee under California law.

Antonin Scalia:

Why isn’t your response, Mr. Mann, that a State that has such a law that does not impose fiduciary duty is a State that has by its laws reduced the value of property that is brought into foreclosure, and just as State zoning laws can reduce the value of property and cause the property to fetch less on the market, so also States that have such foreclosure laws have reduced the value of that property, and so you are getting equivalent value.

One of the factors affecting the value of property is State law.

Ronald J. Mann:

I guess I would have made a slightly different point, which is that I don’t think you can tell, necessarily, that imposition of a fiduciary duty in this context is a good thing in the sense that it will increase values.

When you impose a fiduciary duty, people are subject to suit, people may not wish to undertake the duty, and therefore you may have less competent people performing the sale.

I think this is the type of decision, it’s not all that clear which set of rules is likely to produce the most effective overall benefit for all of the parties involved, and the states have got different rules.

The rules in California are one thing, the rules in Texas are different, but I don’t think it’s particularly easy to say that one set of rules is necessarily more protective than the other.

But I do agree with your point that the value of property must take… that is sold by foreclosure, a reasonably equivalent value, must take into account the fact that the property in question was subject to a lien where the parties agreed that this was the way that the value would be determined and that the property would be transferred.

David H. Souter:

Well, except that that assumes the… I guess that assumes the answer.

You say the parties have agreed.

It seems to me that if all that Congress wanted to get at was a requirement that the value that is received be received after compliance with State law, they took a very obtuse way to require that, because it would have been far simpler to provide precisely that, and we wouldn’t have this question before us.

Ronald J. Mann:

Well, I think if you take a step back and look at section 548 as a whole it becomes clear what’s going on.

Section 548 is designed to recover fraudulent conveyances, and the reason that we’re worried about fraudulent conveyances is that when borrowers become insolvent, they don’t have any incentive to seek a reasonably equivalent value for their property because it’s all going to go to their creditors anyway, and so Congress passed a statute, like the overwhelming majority of the States, that would allow a representative of the creditors to recover the property if it was transferred for less than a reasonably equivalent value.

Now, in order to do that, someone is going to have to look and determine what the actual value of the property is, because you can’t tell if you didn’t get enough until you determine what the value is, and if the property has been transferred in a voluntary sale such as the one to which Justice O’Connor referred, the only way that the judge can evaluate the sale is by attempting to recreate a market transaction.

But if the transaction that has already occurred was one in which anyone who wished to purchase the property was free to show up and purchase it and the highest bidder purchased the property, it would seem unlikely that a judge would be systemically placed to make a better determination of value after the fact than the market made at the time, and I think if you take that point and add to it the point that this is area in which the States have traditionally been responsible for, the Court has been reluctant to interfere with the–

Ruth Bader Ginsburg:

Mr. Mann, but the Seventh Circuit in the Bundles case, in dealing with that issue, said that the State has one concern, and that’s the security of these mortgage foreclosures, the procedure has occurred, it’s done and finished, where the bankruptcy law is designed to preserve the assets of the State and to see that what… the debtor receives something fairly equivalent to what he surrendered.

So the notion of the Seventh Circuit at least was that the Bankruptcy Code provisions must be interpreted in light of what is a driving force of the Bankruptcy Code, which is different from the driving force of the State law provisions dealing with foreclosure.

Ronald J. Mann:

–I think there’s three points I’d like to make in response to that, if I have time.

The first point is not necessarily in response to your question, but I want to mention the Seventh Circuit rule.

It may seem initially attractive to have some sort of rebuttable presumption to allow things to be considered, but from our view the real problem with such rule is that it doesn’t really do much better than a 70 percent rule, because it leads people who would wish to purchase at a foreclosure sale in the predicament of not knowing for sure that they actually are purchasing anything.

With respect to your question, I think that the purpose of section 548, as I was trying to explain to Justice Souter, it really hinges on the notion that the debtor doesn’t have any incentive to secure an appropriate value for the property.

When it’s sold by a foreclosure sale, the debtor is not in a position to be attempting to dissipate the assets of the State.

He has no choice in the matter.

The creditor is doing it.

Ronald J. Mann:

And moreover, at least in this case, and I think that under State law it’s generally true, although it’s not that clear, the sale is conducted by a third party who is charged under State law with a fiduciary duty to obtain the highest possible price for the property, and I think in those circumstance it’s quite difficult to see that there really is a separate bankruptcy policy to which the State has not attended.

David H. Souter:

Well, if you were correct that every State was a fiduciary State, you’d have a stronger argument, but every State isn’t, and I suspect most are not.

Ronald J. Mann:

I think in most States it is true that the foreclosure sale… that if there’s not a fiduciary duty there are other ways to which… that a trustee is in substance held to the fact that if he does not comply with those procedures he will be effectively harmed in the sense that–

David H. Souter:

There may or may not be… there may or may not be, but I would have supposed the language of this statute made it clear that Congress wanted some way to subject this person to a higher duty than merely publishing a notice three times, 3 weeks in succession.

Ronald J. Mann:

–Well, for one thing, obviously the statute in California does impose considerably more obligations than that, but I don’t think it’s clear that Congress intended to have judges attempt to recreate the market and get a better value than the market did, and I guess that’s the point I would make on that.

One last point I wanted to make about–

Antonin Scalia:

What provision… what would the provision be addressed to?

What is your response to the question that Justice Ginsburg asked?

Ronald J. Mann:

–Oh, I… that’s a good point.

Ruth Bader Ginsburg:

Taking into account 544, 548(1), what is the independent office of 548(a)(2)?

Ronald J. Mann:

The situation here is not one that would be covered by section 548(a)(1) because there would not be any fraud by the debtor.

Any fraud that would have occurred in a sale like this would be if the lender was doing something wrong, and it would not be addressed by any provision other than 548(a)(2).

If this provision were not here, and if the voluntary and involuntary language that was added by the amendments were not there, then a completely collusive foreclosure sale, as long as the debtor didn’t have any… wasn’t a part of the collusion, which is entirely possible… for example, a sale at which a foreclosing lender sold it to a related company for a peppercorn… would be immune from invalidation under the Bankruptcy Act, and that would be something that Congress would be concerned about.

William H. Rehnquist:

Thank you, Mr. Mann.

Mr. Sment, we’ll hear from you.

Michael R. Sment:

Thank you, Mr. Chief Justice, and may it please the Court:

I think we’re here today to hopefully promote the established doctrine of federalism and the continuing validity of State foreclosure law.

I think we’re also here today to provide some protection for innocent third party purchasers who purchase at real estate sales conducted pursuant to foreclosure laws, exactly like my clients.

Sandra Day O’Connor:

Well, excuse me, Mr. Sment, I think we’re here today to interpret the Federal bankruptcy statute and determine what that language means.

Michael R. Sment:

That’s correct, Justice O’Connor, and in order to do that we need to focus on the key term, reasonably, and I think on focusing on that term, as the counsel for the petitioner admits, we have to look at the circumstances in the sale.

I think in order to look at that statute and that term, we have to look at the intent of Congress to determine–

Sandra Day O’Connor:

Well then, why do you need a per se rule if you want to look at the circumstances of the sale?

Michael R. Sment:

–The per se rule does look at most of the circumstances of the sale, and I think that’s something that the petitioner seems to overlook, that in order to reach the conclusive presumption that the Ninth Circuit allows, we do have to look at the circumstances in a number of factors at the sale, with one exception.

John Paul Stevens:

But the circumstance you look at is whether it was conducted in accordance with State law.

Michael R. Sment:

No, we look to see if it was noncollusive, which doesn’t necessarily mean State law–

John Paul Stevens:

Well, two circumstances: 1) was it noncollusive, 2) did they comply with State law?

Michael R. Sment:

–And the third one–

John Paul Stevens:

That’s the end of the ball game, isn’t it?

Michael R. Sment:

–Well, but in looking in that, Your Honor, the third one is, was it a fraudulent sale?

John Paul Stevens:

Well, that’s the same as noncollusive, really.

John Paul Stevens:

Well, assume it’s an honorable sale and compliance with State law.

That’s the end of the ball game.

You don’t care how many dollars they got–

Michael R. Sment:

In order to look at that, Your Honors, we have to look at the parties involved, we have to look at the facts and circumstances–

John Paul Stevens:

–The lender puts the property in for the mortgage indebtedness, is what normally happens.

That’s the normal circum… a frequent circumstance–

Michael R. Sment:

–That isn’t what happened here, Your Honor, and keep–

John Paul Stevens:

–Well, 11,000 plus dollars.

Michael R. Sment:

–Well, keep in mind here, Your Honor, under California law and under most foreclosure laws, 1 bid over the credit price for the loan is sufficient to buy the property, and there’s no investor that would necessarily spend more than the 1 if he didn’t have to, so the implication from the 11,000–

David H. Souter:

No one would spend 1 if he could get it for nothing.

No one would… no one would buy if he could steal.

I mean, I don’t know where that gets you.

Michael R. Sment:

–Well, I don’t think the foreclosure laws deal with stealing, Justice Souter, and I would be–

David H. Souter:

No, but the trouble, it seems to me, with your argument is that if the phrase in question, reasonably equivalent value, means nothing more than you say it does and imposes no more of a duty than you say it imposes, it would have been infinitely simpler for Congress simply to say that a bona fide sale conducted in accordance with the requirements of State statutory or common law will be conclusively presumed to realize a fair or sufficient value, and it would avoid all of the interpretive problems that we’ve got.

It didn’t take that simple course, and because it didn’t, it seems to me that on the face of it it must have meant something more.

Michael R. Sment:

–But Your Honor, doesn’t the term, reasonably, suggest that the Court has to conduct its evaluation under the circumstances it faces?

David H. Souter:

I think it does, and it certainly precludes the… it seems to me, the application of a… in effect a per se rule that once there is a noncollusive, nonfraudulent sale in accordance with state statutory requirements, that’s the end of the issue.

Michael R. Sment:

I disagree in part, Justice Souter, and only because I think in the analysis for determining the reasonable equivalent value, the Court has to consider the State law.

I mean, it has to consider the effect of that and whether Congress could have–

Ruth Bader Ginsburg:

But there’s one Bankruptcy Code and there’s a variety of State laws, and some are more protective, some have… require more in the way of advertising… do some require an appraisal before there’s a sale, and some don’t.

So there’d be such a lack of uniformity, if your position is correct, whereas if you take the position of the Seventh Circuit, the foreclosure sale price means quite a lot, but it’s not the be-all and end-all because of the tremendous varieties in what the State law requires.

Michael R. Sment:

–And it’s the very fact of that variety that precludes an application of the Bundles decision.

For example, Bundles talks about appraisals of the property.

That is not required in most States.

It’s not required in California for foreclosure.

Bundles talks about additional advertising or broker involvement.

That is not only not required under California law, it’s assumably not permitted by the California statutes.

I think that again, in considering the term “reasonably”, could Congress have said something different?

Yes.

There’s implications that it may have tried to do that.

Michael R. Sment:

We don’t have anything different.

But to the contrary, it hasn’t prohibited a conclusive presumption.

It hasn’t prohibited the circuits or the bankruptcy courts from interpreting and looking at State law.

Ruth Bader Ginsburg:

Well, because satisfying the requirements of State law and noncollusive, those are independently taken care of by the act without regard to 548(a)(2), what does 548(a)(2) do?

Michael R. Sment:

I disagree in part, Your Honor.

I think that a collusive sale could possibly be attacked under Section 548, but when you have an elaborate, statutory scheme like you have in California, and a sale is conducted pursuant to that scheme, if you then step in and allow a bankruptcy to create a collateral attack on that sale that would not be available in State court, then you’re undoing the State foreclosure laws.

Ruth Bader Ginsburg:

I understand that argument.

I’m asking you what 548(a)(2) then does.

That’s a good argument for saying it does nothing.

It doesn’t need to do anything, and it shouldn’t do anything.

But you don’t need that provision in the bankruptcy law if all that’s required is you meet the requirements of State law and you’re not collusive.

Michael R. Sment:

Section 548 is not limited to foreclosure sales, so if we had a nonjudicial… or a nonforeclosure sale sale, the Court would have to look at all of those circumstances under section 548.

I think that the Ninth Circuit’s point of view, and the reason for their opinion, is we need a rule of certainty here, and at least in the context of a foreclosure sale that has intricate statutory provisions, that provides sufficient notice not only to the borrower but to the public, and under a scheme that we’ve indicated is intended to protect not just the borrower but he lender, third-party purchasers like my clients, and the public at large, those are the interests that are balanced by the foreclosure statute.

And Congress hasn’t said that in interpreting or looking at a case under the term “reasonably” you can’t consider all those factors, nor that you can’t have a conclusive presumption.

This Court made it quite clear in the Arizona v. Maricopa County case that a per se rule could be valid to provide certainty, to reduce complex litigation, to provide some business reasons here for why opportunities ought to go forward.

That’s why the Ninth Circuit ruled the way it did.

We have a complex sale.

If we had a sale that wasn’t a foreclosure sale and didn’t have to comply with all of this checklist of noticing, published notices, recorded notices, actual bidding, auctioning, all these different requirements, then there might not be a basis to establish a conclusive presumption because you haven’t jumped through all the hurdles to get to that sale, and keep in mind–

David H. Souter:

Why isn’t the better rule, even under your own argument, simply that there is no conclusive presumption, but that in California… and I don’t know whether this is true or not.

I’ll just accept this.

But in California, you have done all, in fact… by complying with State law you have done all that would be commercially reasonable, and that when this case in fact goes to trial, you ought to win it, and we’ll assume you will win it.

But in a State which requires nothing but, in effect, legal publication for a certain number of weeks, you wouldn’t win it, and that’s why we should not have an across-the-board conclusive presumption.

Michael R. Sment:

–Your Honor, I think in a State where there is a law, you do need that presumption.

I think you need that–

David H. Souter:

Well, we’ve got to interpret the statute for the whole country, not just for California.

Michael R. Sment:

–I understand, Your Honor, but we also have to interpret it based on the facts that are before us, and the stats–

David H. Souter:

No, but you’re not asking it to be interpreted based on the facts that are before us.

You’re asking for the conclusive presumption, and yet your own argument about the ingredients of reasonableness suggest that you in fact are not really justifying a conclusive presumption, and in this case you take the position, and it may be a quite sound position, that you would win even without the conclusive presumption.

Michael R. Sment:

–If that’s the case, Your Honor, where you would win without the presumption, isn’t that a basis for applying the presumption?

Isn’t that what this Court said in the Maricopa County–

David H. Souter:

Not if we’re going to have… not if we’re going to have one rule for 50 States.

Michael R. Sment:

–Well, I think, Your Honor, if we have one rule–

David H. Souter:

I mean, the statute doesn’t mean something different in California from what it means in Vermont.

Michael R. Sment:

–But if it means that under your law you’ve satisfied all the tests in our State to determine whether you’ve done what the statutes require, you’ve obtained the value that you can, you’ve protected all of these parties, isn’t that a basis–

David H. Souter:

Well, you… you make very easy to answer when you say you’ve obtained the value that you can, and some State laws require you to obtain… or to do everything reasonably possible to obtain that value.

Other State laws don’t, and because they don’t, it seems to me there is an argument, and I thought you were accepting it, for a… not for a conclusive presumption, but for a reasonableness analysis of the facts of the individual case.

Michael R. Sment:

–I was trying to respond to your question, Justice.

Thank you.

William H. Rehnquist:

Thank you, Mr. Sment.

Mr. Woolsey, you have 10 minutes remaining.

Roy B. Woolsey:

May it please the Court, Mr. Chief Justice:

I think that we’ve got to keep the primary focus on the words, reasonably equivalent value.

We’re comparing values, and the other circumstances play a part, but not the important part that the first thing is comparing reasonably equivalent values.

Antonin Scalia:

But you’re not really doing that, because you come before us and say, well, two-thirds is close enough.

You think that’s reasonable?

I’ll buy everything you have for two-thirds of what it’s worth.

Is that reasonably–

Roy B. Woolsey:

I don’t think it is, Your Honor.

Antonin Scalia:

–But you’re saying 70… well, you’re saying 70 percent is close–

Roy B. Woolsey:

I said I would settle for 70 percent, because we would win under that.

I’m not sure that that’s the proper rule.

I think that perhaps it should be–

Antonin Scalia:

–I’m not sure, either, and the logic of what you’re arguing is that it should be 100 percent, and that makes it a lot more difficult.

Roy B. Woolsey:

–No, it… no, reasonably equivalent can’t mean 100 percent of equivalent value.

It’s got to be something different.

Antonin Scalia:

Reasonably close to 100 percent.

Roy B. Woolsey:

Yes, I think that’s right, Your Honor, and what that means is difficult, and it leaves open for the Court a lot of discretion on the facts, but there shouldn’t be a conclusive presumption that they throw us out of Court on a motion for summary judgment or a motion for a dismissal for failure to state a cause of action at all.

Now, in California, I want to call the attention… one thing to the Court.

The California law recognizes that we don’t get the best price at a foreclosure sale.

They recognize it in two ways.

Roy B. Woolsey:

First, if you use the private power of sale that people use for the most part, you can’t get a deficiency judgment.

If, to get a deficiency judgment, you resort to the judicial foreclosure, then to get a deficiency judgment you have to have a hearing on the fairness.

You have to have a hearing on price and values.

Now, mention was made about mortgagees and trust deed holders, and California law, we use mortgages occasionally, but generally deeds of trust, and there we have a third-party trustee who does have fiduciary duties to trustor and beneficiaries of the trust deed.

In the mortgage States, where they don’t use trust deeds, I doubt that that is present.

I doubt that requirement’s there at all in some of them.

A flat out, conclusive presumption will prevent questioning the reasonably equivalent value in a case where there’s 2 or 3 percent bid at a sale, and there are sales that happen like that, and certainly we should leave the door open to question those sales.

Now, to review what the circuits have done, we have circuit courts in five circuits that have definitely decided that there’s no conclusive presumption.

Third Circuit, Barrett was decided.

Fifth Circuit, Durrett and Abramson under the old law, and Dessing under the new statute.

Seventh Circuit, Bundles, Eighth Circuit, Hulm, Eleventh Circuit, Littleton and Grissom, cited in our briefs.

The Fourth Circuit is covered by the Morris case, which didn’t really arise as a foreclosure case, but applies the rule and sets forth the standards.

In the First Circuit, we have a hopeless conflict.

I call the Court’s attention to a case I didn’t cite, National Environmental Systems in 111, Bankruptcy Reports 4, a New Hampshire case, which I think gives the better view in that circuit.

In the Second Circuit, we have the Saklin Mortgage case.

The citation on that, I have the LEXIS citation, 1993 Bankruptcy LEXIS 1187.

In the Fourth Circuit we have Springfield Furniture, 145 Bankruptcy Reports 520.

That–

Antonin Scalia:

Mr. Woolsey, suppose you have someone who’s on the verge of bankruptcy and, realizing that, has a going-out-of-business sale, sells all the stuff in the store not at 70 percent but at 20 percent of what it’s really worth.

Is he getting fair value, or reasonably equivalent value?

Roy B. Woolsey:

–Your Honor, that comes down the wholesale question.

Where a retailer is selling in bulk to close out, he’s selling on a liquidation basis for what he can get.

Antonin Scalia:

It’s sort of a distressed basis, and he only gets… you know, he says 20 percent is the only thing that will clear it, so he asks 20 percent.

Roy B. Woolsey:

Well, he… at least it’s a voluntary sale and it’s not taken from him, and he makes the decision that it’s best to sell it, and he can sell it at a wholesale price.

Now, we have one case I cited in the brief, and I forget the name of it, where someone failed to get a markup.

He got a… the Bankruptcy Court held there should be a 20 or 30 percent markup, and the court of appeals said it could be a little less than that, but set aside the sale unless the difference in value is paid by the transferee.

So we can have situations where we could set aside sales that are liquidation sales, or sales that are… that are below retail value but above wholesale value.

I think that Congress wanted us to look at the foreclosure situation and especially said so after the Durrett decision was rendered and the Congress has an amendment to the statute proposed that will adopt the Madrid conclusive presumption rule.

Instead of adopting that, they didn’t adopt that amendment, and they did put in section 101 of the Bankruptcy Act, in the definition of transfers, specifically the foreclosure of an equity of redemption is a transfer.

Now, what does that mean?

Roy B. Woolsey:

That’s the foreclosure situation.

Congress wants this to apply to a foreclosure situation.

That was a clear–

Antonin Scalia:

Don’t you think Congress had some obligation to be clearer about that point if it expects us to set aside the foreclosure laws of 50 States, which until now have been assumed to transfer good title, and in the future they won’t?

Don’t you think Congress had some obligation to be clear about that?

Roy B. Woolsey:

–Well, Congress… of course, the Court would find it… the clearer the language of Congress, the easier the job for the Court, and the more consistent throughout the country–

Antonin Scalia:

I’m just asking, where do you think the burden of clarity in this case ought to be?

It’s unclear.

I think both sides acknowledge that to some extent, but where’s the burden of clarity?

Roy B. Woolsey:

–Where it’s unclear, of course the Court can take into account extraneous things other than the face of the statute to try to interpret them.

The Court has to make a determination where Congress has made a statute that’s not clear.

But I think they’ve said, reasonably equivalent value, which means something like market value… it’s a comparison, a relationship.

Antonin Scalia:

It doesn’t mean anything at all.

Doesn’t mean anything for sure at all, does it?

Roy B. Woolsey:

Well, I think it does.

I think the words “equivalent value” are very clear, and “reasonably” makes it a little uncertain and puts the burden on the Court to make some decision about it, but certainly not as the type of sale.

It’s mainly a comparison of value.

Ruth Bader Ginsburg:

It could mean something different in the bankruptcy context than it means… and I think Mr. Mann was talking about the application of 548(a)(2) outside the bankruptcy context.

Roy B. Woolsey:

Well, there may be a difference.

Now–

Ruth Bader Ginsburg:

Outside the foreclosure.

I’m sorry… outside the foreclosure sale.

Roy B. Woolsey:

–Oh, yes.

Ruth Bader Ginsburg:

So that in answer my question, what good does this section do, he said that there are sales other than foreclosure sales, I believe.

Roy B. Woolsey:

Well, I think that it applies to foreclosures as well as other transactions, yes, and what would it do if it doesn’t apply to foreclosure, it could apply to other transactions, that’s clear, but here we have, in 101, the Congress specifically saying the foreclosure of an equity of redemption is a transfer, so it seems to me that we’ve got to say that foreclosures can be reviewed by the Court.

David H. Souter:

And if under State law a bid simply for the amount of the debt is always going to be conclusively deemed to be sufficient, the equity of redemption is always going to be worth zero, right?

Roy B. Woolsey:

That is correct.

That’s correct.

David H. Souter:

Presumably Congress didn’t mean that.

Roy B. Woolsey:

I don’t think so.

Roy B. Woolsey:

Thank you, Your Honor.

Are there any other questions?

William H. Rehnquist:

Thank you, Mr. Woolsey.

Roy B. Woolsey:

Thank you.

William H. Rehnquist:

The case is submitted.

The honorable court is now adjourned until tomorrow at ten o’clock.