resolution today is the is a question of pure a question of wall that has arisen as a result of amendments in two thousand and five to the bankruptcy code in the bankruptcy whether that it affected the complete abrogation of the absolute priority rule and as the court i'm sure is familiar the absolute priority rule is a rule that has been significant in bankruptcy chapter eleven bankruptcy practice for over one hundred years it's now been codified in eleven twenty nine b to be small to an end in in  essence it provides that a did or in a chapter eleven reorganization cannot retain the property of the estate that existed at the time of the commencement of the case after conclusion of the plan along was will settled to that effect up until baps the there was no question that in the case of a corporate debtor or in the case of an individual debtor the absolute priority rule applied then came and in this case what the bankruptcy judge determined was that baps ipa affected the complete abrogation of that rule as to an individual chapter eleven debtor here mr carden and practical consequence of that decision then went on over objection held the confirmation hearing and confirmed the plan mr carden is operating under that plan at present time but what was the property that it's  subject to this she he had and still has a home and form that he valued in his schedules at i think four hundred and thirty thousand dollars and he had eight  machines which are the essence of his business these are self contained large machines that a consumer comes up puts a two dollars in and gets a bag so they generate income he estimated in his schedules that those were w machines generate income so what the bankruptcy court failand was that he and the income for example in two thousand and twelve was two hundred sixty four thousand dollars in gross income so what the bankruptcy court f was that he was able under that the baps leap but of course retain his exempt property as any bankruptcy did or can he was able to get under the clear him in what we would agree that he would get to use both property and income during the period of the chapter eleven and then after the chapter eleven was concluded he would get to keep all that property while heir client would get paid a minimal portion of its wealth should inside a minimal portion and in twenty five thousand dollars of its one point five million dollars unsecured klein a claim by the way that arose based upon a jury verdict in the state of florida one point five million dollar jury verdict which we then the bankruptcy was filed when we attempted to domesticate judgment in tennessee so the bankruptcy court found that mean think to generate income from these machines well well we would hope ask and ask your honor is that because this does violate the absolute priority rule which may remains viable after that the case should either be dismissed or converted to a chapter seven and should be liquidated and you get that you get the machines that we would get the machines it would be to get the value the machines in a in a foreclosure yes  three the three circuit courts that now have evaluated the issue the fourth the fifth and the tenth as well as to bankruptcy judges judge cook and judge stayer in the eastern district of tennessee and those courts have reached a conclusion we believe the correct conclusion  only it did exclude from the state the income and property that the debtor would have would generate during the play in but that it did not excludes from the estate the property and the income that's generated during the plan period ok so it excludes from the state property post petition earnings but otherwise in your reading doesn't affect the absolute primary rule exactly and the courts have reached that conclusion most of them have reached the conclusion best saying and i'll be  short brief clear decision and most importantly relies upon or reference as the seaford decision of this court approximately a year ago that court says if you take the the court said the case case law finding ambiguity rests on terms included in an under two words not normally subject the subject to such parsing reading the phrase eleven twenty nine b to b to seems a grammatical stretch because eleven one one one five expressly states that property is being added to the state to be added to that comprise about forty one the section does not supersede five forty one property any more than the number two supersedes three in the court sonnets the c for decision in which this court dealing with chapter thirteen interpreted the  virtually identical section in chapter thirteen to mean added it was the chapter thirteen section again in that case the chapter thirteen section is thirteen zero six and it is virtually is a stand alone section property of the estate includes in addition to the property in section five forty one and then the two sections property of the can specified that the debtor acquires after together section five forty one fixes property of the state as of the filing while section three of six and stude the property of the estate property interest which arise post petition and using that same analysis we reach the conclusion that the absolute priority rule continues to apply to individual chapter eleven debtors and it's only limited as to that post petition property any and all right morning ars my name is bill maddox i'm an attorney knoxville tennessee i represent charles wang harden and been his only bankruptcy counsel since we found the chapter eleven back in two thousand and eleven i've got her burden here today  three circuits lined up against me and i've got on my side the ninth circuit bankruptcy appellate my job here is given to you guys in fifteen minutes that these other three circuits are wrong and the ninth circuit appellate panel was right and so that's yeah and you might want to start with the seaford case from our circuit because it would be awfully strange it seems to read what i think is literally the same language differently in this section than we do in the chapter thirteen section i think it goes along with the overall tenor of the two thousand and five act well that's before we sort of fly off into overall tenor i mean is there any text i mean you between the section at issue here and the section and issue there because as mr kelly just wrote it sounded identical well i think the textual difference is that it's reference in eleven twenty nine that you bring in all eleven fifteen property which includes a five forty one property and that's what the debtor is allowed to keep as marriage and we have the same kind of reference there are i mean i could be mistaken in the thirteen case clarify a few things from what mr kelley said yes there's equity in the ice machines and his house above and beyond a lien holder there are two parts to the confirmation battle and we had the judge bifurcated the issues that she let us decide this absolute priority rule soley on briefs and then we have separate factual issues and after a factual determination that we met every other criteria our plan was confirmed including the best interest of the creditors test that the judge parsons established after a two day trial with the value of the debtors a state was what the liquidation value would be and at the end of the day determined that arm in the plan met that liquidation value so there is no determination that mr kelly's klein or any other creditors are going to be worse off well they're worse off than they would be you know if they i mean i think mr kelly outlined the consequences of his interpretation here which is your plan doesn't get approved right bricked this probably goes to a seven they probably get the ice machines so that makes them i mean they'd be better off in that scenario they're getting paid more in our scenario and they don't seem to think so rather incredible this was frequently expressed overall purpose of betsy i e to ensure that debtors who can pay back a portion of their debts do so that's what the judge in four circuit said trying to do that's exactly what they're trying not to do here they want him they want my client and seven or they want the case dismissed they don't want him to pay back a portion of the debts and i find that port maharaj you know the most telling is that they i think all these courts went about it with the absolute priority rules as untouchable dogma they couldn't understand the language they said well language is unclear so clearly they weren't trying to change absolute party rule and then they said that you know all these greater impositions on chapter eleven debtors ensuring that they pay more and they pay more and they pay more what they actually party rules doing is going to put individual debtors and seven are out of bankruptcy altogether it's not going to sure they're paying back a portion of their debts but i mean we're not as i understand  job is to sort of figure out what these words mean for you know and not to sort of second guess maybe some policy choices congress made and as i understand your argument you're looking at eleven twenty nine one five and so then so the question is well does the property included in the estate by section one and five include everything that's in the estate i e property that would already have been in the estate under section five forty one for iams plus this new post petition layer of property that's put in your state under this act  does this reference to property included in the state under section one one one five refer only to this new post petition layer that is included i think included in i keep getting that mixed up included in the estate under this act so then we go to one one one five and it says property the estate includes in addition of the prop in addition to the property specified and section five forty one and then it talks about this post petition layer and i guess my question for you is i mean the word includes were included i think is often times which got you know a transitive verb it's a verb that is acting upon an object unlike an intransitive verb is you know the children played outside they're not acting on an object you know but if you a transitive verb is you do something to an object and here it's saying property included in the estate under section one one five so one one five is doing the including bringing in em and the problem i have with your argument is the property was already there under section five forty one so i don't see how section one one one five is doing any including it was already included i would point you to the two words in addition maybe like the very first sentence of eleven fifteen property the state includes in addition to the property specified in section five forty one then this new right but that's almost acknowledging that it was already there under five forty one isn't as opposed to being brought into the bankruptcy estate by section one one one five one one one five is defining what property the state for chapter eleven individual debtor is eleven twenty nine says this is the protos five forty one due in a chapter eleven case i don't think that things are perceived or incorporated eleven fifteen refers to it but i mean chapter section five forty one is you know a foundational provision of the code and it's brought into eleven fifty it's for ok but it was already there it's already i mean it already brought the property into the state right so why would we act like one one one five  provision that brings classically you know property of the estate in the estate as a living twenty nine tells us that it does i mean what's the living twenty nine is the purpose otherwise that new i mean living twenty nine is the absolute party rule and they changed i tennessee that mr keller says it ruled that way is that correct no i mean i'm practice in front of judge there on a daily basis and i respect him greatly but i have to stop the judge parsons on this one just because the language they determine the else it's done in the act in fact it goes along with all the other provisions that try and bring eleven back in line with thirteen that the only the only decision that then sort of step back and say it's ambiguous a kid doing it is free they went into the language of this language is clear i mean i think if you drop an alien down here that know nothing about bankruptcy codes that read this tell me what it means they're going to go with the friedman court i mean the words in addition includes added are not complicated are you nuance words the plain meaning is very claim vote in favor of the plan and they are likely to do so if a reasonable dividend is proposed but that's just not the way the world is right now secondly the us trustee objected to my plan based on the absolute party rule which had nothing to do with the dividend she was going to get paid they actually party rule is being used as a tool to drive individual debtors into chapter seven have the case dismissed it is not being used to ensure that debtors pay more which has been chapter thirteen because in chapter eleven the debtors post petitioner earnings were not included in the property of the state isn't that all that congress is trying to fix here bring those into alignment so that post petition earnings are included in a chapter eleven state just like they are thirteen so we don't have that disparity i mean isn't that i mean if we're going to kind of go off what's the purpose here isn't that historically a pretty compelling story as to what congress is doing i think they were trying to line it with thirteen we not only post petition earnings you're going to commit your reasonable disposable income for sixty months just like just like chapter thirteen you know absolute party rule exists were these debtors going to get i mean you got the property you can't keep that drill got to pay a body in full i mean these are high school that was in place since one nine hundred fifty two right before two thousand and five and it's not exactly a radical regime and we can all agree that in the bankruptcy code was pretty radically changed in two thousand father or a lot of changes and a lot of them are clear as you know this practitioners of thirteen know about the hanging paragraph and you know where the seventy day rule come from on the look back at not where they get nine hundred ten days i mean there's a lot of stuff that's not clear which is why i keep going back to friedman the one court that actually delved into the language and said how does this work and here's how it works versus the other courts it just said it's too ambiguous to figure out clearly but again i'm just going back real quick to the fair and equal i mean you basically without that with the absolute priority rule and with the other changes you're there's no chapter bankruptcy for certain debtors i mean if you have property like like my client but you have an enormous debt that i mean yes he has income and he can he can fund a plan he can't pay the one point five million dollars in five years mr kelly actually argued that our plan wasn't feasible because you couldn't pay the you could be maintained what we have there is no chapter for him if this chapter seven if this were a debtor were it was not a business debt let's say this was a car wreck or enormous five hundred thousand a medical bills my client would not pass the means to  just unfortunately where it is now as well the goal of chapter of two thousand and five act as the court on the opposite side of me says was to make sure people pay a portion of their debts it's two thousand and five didn't eliminate chapter seven that night or seven is always been there still was liquidation but it's not there for certain people i don't get that if my client had it's there for your it is for my client but i'm telling you that if it were a consumer debts and the clients i have more than four hundred thousand consumer debts a car wreck an accident your house you know long extended medical bills but they can't pass the means test there is no bankruptcy chapter for them and you know the goal stated goal of two thousand and five act all throughout is we want less people in chapter seven we want to try to make sure that as a as a course of pay a portion of their debts that's what my client's trying to do that was we have to leave it up to congress to set up a mechanism to work because the court came just do it out there i agree and i would submit humbly to the court that they did not that they set up the mechanism for this they altered the absolute priority rule by changing the language eleven twenty term first mr maddicks talk about the policies of the babsy but as if the only purpose was to try to say chapter individuals who have gotten themselves into financial fixes and want to opt for some help want to avoid chapter seven but babsy this is what the ledge is the factors  this is from the health representatives report the factors which lead to the need for bankruptcy reform included quote a growing perception that bankruptcy leads may be too readily available a concern about financial consequences for the nation's economy when creditors are not able to collect it is the perception that bankruptcy system quote has loopholes and incentives that allana and sometimes even encourage opportunistic personal filings and abuse and here's the really important one and studies indicating that some degree debt bankruptcy debtors are able to pay a significant portion of their debts it's just amazing to me to hear counsel talk about fair and equitable in this situation as if that benefits him this is an individual who was found liable about a florida jury in for a one point five million dollar judgment the moment that that company tried to domesticate the judgment in tennessee he he filed bankruptcy over two years ago and for two years he has been operating that business benefiting from it and under the present plan is making teeny payments of interest to us while this case is pending  suggested that it was no your honor it was tortious it had several cup components tortious interference with contract in breach of contract in it he was a dealer for us house america and the court fail and the jury found and then the the judge actually injured some findings of fact indicating that he had gone out while he was a distributor work started helping a new company sell their product competing company and tried to bring customers to that new company out of this like you wrote out of this relationship but having done that he's now saying that with the baps amendments he should be allowed he has generated six some secure debt but he should be allowed to keep the exam property anything he generates during the plan period and all that property left and as house america that had a one point five million dollars judgment should get one hundred twenty five thousand so if ever there was a case it's similar frankly to the facts in i believe it's the laughably case where an individual had a very successful business that was generating income i think they were railroad cars or something like that and wanted to keep that business made the same argument that he should be allowed to keep it because the overwhelming purpose of babsy was to save you know to say chapter eleven debtors there's nothing in the legislative history suggests that congress is trying to at all costs allow individuals to to reorganize sometimes they have gotten themselves into circumstances and but for chapter seven i mean chapter seven is us is a savior for them because at least they get a fresh start the only other points i would make your honor or one i would encourage the court majority was in error and finally i just want to conclude by reading what judge steyer said in the lindsey case when he got it right now i i think he he found ambiguity where there there there probably wasn't but this is just great writing judge stero to returning to section eleven twenty nine b two b two but cause section one one one five is a supplement to section five forty one with respect individual chapter eleven deaders the more logical reading of the phrase quote included in the estate under section one one one is than their old one that congress intended for only post petition wages and debtors after acquired property to be excepted from the absolute priority route as apple discussed in prior decisions had the intent been to completely remove the application of eleven twenty nine b two b two s to individual  congress could have done so in a more explicit manner for example it could simply have had the phrase except in the case in which the debtors individual to the beginning of subsection two without any reference to section one one one five at all however referencing one one one five the purpose of which is to a head post katich is wages and property acquired by the debtors post petition into the estate it can be easily deduced that congress intended to exclude only post petition wages and property acquired by the debtors post petition on the application of eleven twenty nine b to the two aren't you very well thank you both for your arguments very interesting case the case of the submitted clerk may call the next case