RadLAX Gateway Hotel v. Amalgamated Bank

PETITIONER: RadLAX Gateway Hotel, LLC., et al.
RESPONDENT: Amalgamated Bank
LOCATION: The Radisson Hotel

DOCKET NO.: 11-166
DECIDED BY: Roberts Court (2010-2016)
LOWER COURT: United States Court of Appeals for the Seventh Circuit

CITATION: 566 US (2012)
GRANTED: Dec 12, 2011
ARGUED: Apr 23, 2012
DECIDED: May 29, 2012

ADVOCATES:
Deanne E. Maynard - for the respondent
David M. Neff - for the petitioners
Sarah E. Harrington - Assistant to the Solicitor General, Department of Justice, for the United States as amicus curiae, supporting the respondent

Facts of the case

RadLAX Gateway Hotel, LLC., owned the Radisson Hotel at the Los Angeles International Airport as well as an adjacent parking structure. In November of 2007, RadLax sought to expand the Radisson Hotel. It therefore obtained a $142 million construction loan from the Longview Ultra Construction Loan Investment Fund, for which Amalgamated Bank served as trustee and administrative agent.

After taking out the loan, RadLAX was eventually forced to file voluntary petitions for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois. Soon after, RadLax embarked on a campaign to sell the Radisson Hotel and adjacent parking structure.

On June 4, 2010, RadLAX filed a joint chapter 11 plan, which proposed the auction of substantially all of its assets and the distribution of proceeds to various creditors. The debtors specified that no secured creditor would be permitted to credit bid at the sale. Amalgamated Bank objected to the proposed bid procedures on the grounds that a sale of its collateral, free of liens, required the debtor to allow a lender to credit bid.

The Bankruptcy Court agreed with Amalgamated Bank and denied RadLax's proposal with regard to credit bids. The case was appealed to the U.S. Court of Appeals for the Seventh Circuit, which affirmed the bankruptcy court's decision. RadLAX subsequently appealed the appellate court's decision.

Question

Under the bankruptcy code, may RadLAX pursue a Chapter 11 bankruptcy plan which proposes to sell assets free of liens, without allowing Amalgamated Bank to bid on credit, but instead providing the creditor with the equivalent of its claim?

Media for RadLAX Gateway Hotel v. Amalgamated Bank

Audio Transcription for Oral Argument - April 23, 2012 in RadLAX Gateway Hotel v. Amalgamated Bank

Audio Transcription for Opinion Announcement - May 29, 2012 in RadLAX Gateway Hotel v. Amalgamated Bank

John G. Roberts, Jr.:

Justice Scalia has the opinion of the Court this morning in case 11-166, RadLAX Gateway Hotel versus Amalgamated Bank.

Antonin Scalia:

This case is here on certiorari to United States Court of Appeals for the Seventh Circuit.

In 2007, the petitioners here, RadLAX Gateway Hotel and RadLAX Gateway Deck purchased a hotel near Los Angeles International Airport, along with an adjacent lot on which they planned to build a parking structure.

To finance the purchase and the improvements, they obtained a $142 million loan secured by a blanket lien on all of their assets.

Respondent Amalgamated Bank here is the trustee and administrative agent for the lender.

Building the parking structure proved more expensive than the borrowers had anticipated.

Within two years, they ran out of funds and were forced to -- forced to halt construction.

In August of 2009, they filed petitions for relief under Chapter 11 of the Bankruptcy Code at the time they owed more than $120 million on the loan with $1 million in interest accruing every month.

Now Chapter 11 bankruptcy is implemented according to a plan, typically proposed by the debtor, which specifies how the debtor will repay its creditors.

If the plan meets statutory requirements, the Bankruptcy Court may confirm it.

Certain types of plans known as “cramdown plans” maybe confirmed even if creditors object.

Those plans must be fair and equitable and a special statutory provision, Title 11 U.S.C. Section 1129(b)(2)(A), which I will hereinafter refer to as (2)(A) for simplicity's purpose, establishes criteria for determining when that condition is met with respect to secured claims, like the one at issue here.

The cramdown plan proposed by the RadLAX debtors envisioned sale of the hotel and the adjacent parking property at an auction and using the sale proceeds to repay the Bank.

The opening bid at auction would be close to $50 million dollars, substantially less than the Bank is owed.

Of course the Bank might wish to buy the property itself if the alternative would be receiving sale proceeds that fall far short of what it believes to be the property's value.

Under the debtor's proposed auction procedures, however, the Bank would not be allowed 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 have to pony up cash.

The Bankruptcy Court denied the debtor's proposal holding that the auction procedures did not comply with (2)(A)'s requirements for cramdown plans.

The Seventh Circuit affirmed.

We granted certiorari and we now affirm.

A Chapter 11 plan crammed down over the objection of a secured creditor must be one of three requirements in order to be fair and equitable within the meaning of the statute.

Under (2)(A), clause (i), the debtor may sell the secured property subject to the lien with the secured creditor to receive deferred cash payments.

Under clause (ii), the debtor may sell the property free and clear of the lien at a sale at which the creditor may credit-bid.

In lieu of the lien on the property the creditor receives a lien on the sale proceeds or under clause (iii), the plan may provide the secure creditor with "the indubitable equivalent" of its claim.

Here, the debtors claim to sell their property free and clear of the Bank's lien and to repay the Bank with the sales proceeds.

That is precisely the type of plan covered by clause (ii), except that the debtor's plan would not permit the Bank to credit-bid.

The debtor's claim that even though their plan flunks clause (ii), it may satisfy clause (iii) by providing the Bank with “the indubitable equivalent” of its secured claim in the form of cash generated by the auction.

We disagree.

As we have previously explained “it is a common place of statutory construction that the specific governs the general.”

In a statutory scheme like the one at issue here where a general authorization and a more limited specific authorization exist side by side, regulated parties normally may not sidestep the requirements of the specific provision simply by invoking the general one.