Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-13-16402/USCOURTS-ca9-13-16402-0/pdf.json

Parties Involved:
California Bank & Trust
Appellee
Annmarie S. Snorsky
Appellant
David K. Zachary
Appellant

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

DAVID K. ZACHARY; ANNMARIE S.

SNORSKY,

Debtors-Appellants,

v.

CALIFORNIA BANK & TRUST,

Respondent-Appellee.

No. 13-16402

D.C. No.

2:11-bk-42866

OPINION

Appeal from the United States Bankruptcy Court

for the Eastern District of California

Thomas C. Holman, Bankruptcy Judge, Presiding

Argued and Submitted

October 21, 2015—Stanford Law School, California

Filed January 28, 2016

Before: Richard A. Paez, Mary H. Murguia,

and Andrew D. Hurwitz, Circuit Judges.

Opinion by Judge Hurwitz

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2 ZACHARY V. CALIFORNIA BANK & TRUST

SUMMARY*

Bankruptcy

Affirming the bankruptcy court’s order sustaining an 

objection to a chapter 11 plan of reorganization, the panel 

held that the absolute priority rule in 11 U.S.C. 

§ 1129(b)(2)(B)(ii)―providing that a dissenting class of 

unsecured creditors must be provided for in full before an 

individual debtor can retain any property under a 

reorganization plan―continues to apply following the 

amendments to the Bankruptcy Code enacted as part of the 

Bankruptcy Abuse Prevention and Consumer Protection 

Act.

Following other circuits, the panel overruled In re 

Friedman, 466 B.R. 471 (9th Cir. BAP 2012), and adopted 

the “narrow view” that the BAPCPA amendments merely 

have the effect of allowing individual chapter 11 debtors to 

retain property and earnings acquired after the 

commencement of the case that would otherwise be 

excluded under § 541(a)(6) & (7). Thus, an individual 

debtor may not “cram down” a plan that would permit the 

debtor to retain prepetition property that is not excluded 

from the estate by § 541, but may cram down a plan that 

permits the debtor to retain only postpetition property.

 * This summary constitutes no part of the opinion of the court. It has 

been prepared by court staff for the convenience of the reader.

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ZACHARY V. CALIFORNIA BANK & TRUST 3

COUNSEL

Gregg W. Koechlein (argued), Reno, Nevada, for DebtorsAppellants.

Matthew D. Murphey (argued), Penelope Parmes, Martin W. 

Taylor, Meghan Canty Sherrill, Troutman Sanders LLP, 

Irvine, California, for Respondent-Appellee.

OPINION

HURWITZ, Circuit Judge:

This case presents an arcane but important question of 

first impression in this Circuit: Does the absolute priority 

rule continue to apply in individual chapter 11 

reorganizations after the amendments to the Bankruptcy 

Code enacted as part of the Bankruptcy Abuse Prevention 

and Consumer Protection Act of 2005 (“BAPCPA”)? We 

hold that it does.

I. Factual and Procedural Background

In September 2011, David K. Zachary and Annmarie S. 

Snorsky (“Debtors”) filed a joint voluntary individual 

chapter 11 petition. The Debtors’ operative plan of 

reorganization placed their largest unsecured creditor, 

California Bank & Trust (“California Bank”), into its own 

class of unsecured creditors and proposed to pay it $5,000 

on its claim of nearly $2,000,000. California Bank’s claim 

was thus “impaired under the plan.” 11 U.S.C. 

§ 1129(a)(8)(B).

California Bank objected, arguing that the plan violated 

the so-called absolute priority rule of 11 U.S.C. 

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4 ZACHARY V. CALIFORNIA BANK & TRUST

§ 1129(b)(2)(B)(ii). The bankruptcy judge, disagreeing with 

the Ninth Circuit Bankruptcy Appellate Panel (“BAP”) 

opinion in In re Friedman, 466 B.R. 471 (B.A.P. 9th Cir. 

2012), sustained the objection, holding that “the absolute 

priority rule still prevails” in individual chapter 11 

bankruptcies after the enactment of BAPCPA.1

Debtors filed a timely notice of appeal of the bankruptcy 

court’s order sustaining California Bank’s objection to their 

plan. The bankruptcy court certified the appeal, and this 

Court authorized a direct appeal. 28 U.S.C. § 158(a), 

(d)(2)(A).

II. Discussion

We review “de novo the bankruptcy court’s and the 

BAP’s interpretations of the bankruptcy statute.” In re 

Boyajian, 564 F.3d 1088, 1090 (9th Cir. 2009). “A party 

contending that legislative action changed settled law has the 

burden of showing that the legislature intended such a 

change.” Green v. Bock Laundry Mach. Co., 490 U.S. 504, 

521 (1989).

 1 Debtors argue that In re Windmill Farms, Inc., 70 B.R. 618 (B.A.P. 9th 

Cir. 1987), rev’d on other grounds, 841 F.2d 1467, 1474 (9th Cir. 1988),

“held that BAP decisions were binding on all bankruptcy courts in this 

circuit,” and the bankruptcy court here was required to follow In re

Friedman. Because we must today address the continued applicability 

of the absolute priority rule regardless of the precedential effect of BAP 

opinions, we pretermit consideration of the issue. Cf. Bank of Maui v. 

Estate Analysis, Inc., 904 F.2d 470, 472 (9th Cir. 1990) (O’Scannlain, J., 

specially concurring) (discussing need for judicial council action to make 

BAP decisions binding on all bankruptcy courts within the circuit).

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ZACHARY V. CALIFORNIA BANK & TRUST 5

A. Individual chapter 11 bankruptcies and the 

absolute priority rule.

“Individual debtors have two basic options under the 

Code.” Ice House Am., LLC v. Cardin, 751 F.3d 734, 736 

(6th Cir. 2014). They can either liquidate their non-exempt 

assets under chapter 7, or file for reorganization under 

chapters 11 or 13. See 11 U.S.C. §§ 701–84, 1101–46, 

1301–30. A chapter 13 reorganization, however, is only 

available to individual debtors whose debts fall below 

certain limits. See 11 U.S.C. § 109(e). Individual debtors 

with more debt can only file for reorganization under chapter 

11, which is “used primarily by debtors with ongoing 

businesses.” Toibb v. Radloff, 501 U.S. 157, 163 (1991) 

(emphasis omitted).

An individual filing under chapter 11 may confirm a plan 

of reorganization in one of two ways. The first is by 

satisfying the bankruptcy court that a plan complies with 

each of the sixteen paragraphs in 11 U.S.C. § 1129(a). 

Under this path, “[o]f particular note is the requirement of 

obtaining the consent of each class of creditor as required by 

paragraph (8) of § 1129(a).” In re Friedman, 466 B.R. at 

480. Absent unanimous approval of the plan by each class 

of creditors, a debtor must pursue the second path to 

confirmation.

Under the second path, a debtor can obtain confirmation 

by satisfying the bankruptcy court that, notwithstanding any 

creditor’s objections, the plan is “fair and equitable” to each 

creditor class. 11 U.S.C. § 1129(b)(1), (2). Because this 

“nonconsensual method of confirmation” is obtained over 

creditor objection, it is known as a “cramdown.” In re 

Friedman, 466 B.R. at 480. A debtor may cram down a plan 

only if it complies with the absolute priority rule in 

§ 1129(b)(2)(B)(ii). Put another way, a bankruptcy judge 

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6 ZACHARY V. CALIFORNIA BANK & TRUST

may find that a debtor’s plan is “fair and equitable” to an 

objecting creditor only if the plan complies with the absolute 

priority rule.

The absolute priority rule is a “judicially created 

concept,” with its genesis in “early twentieth-century 

railroad cases.” In re Friedman, 466 B.R. at 478. It arose 

from the Bankruptcy Code’s statutory requirement, now 

codified in 11 U.S.C. § 1129(b)(2), that a reorganization 

plan be “fair and equitable” to each class of creditors. The 

rule “provides that a dissenting class of unsecured creditors 

must be provided for in full before any junior class can 

receive or retain any property under a reorganization plan.” 

Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 202 

(1988) (alteration omitted) (quoting In re Ahlers, 794 F.2d 

388, 401 (8th Cir. 1986)). “The U.S. Supreme Court adopted 

the absolute priority rule to prevent deals between senior 

creditors and equity holders that would impose unfair terms 

on unsecured creditors.” In re Friedman, 466 B.R. at 478; 

see also N. Pac. Ry. Co. v. Boyd, 228 U.S. 482, 503–04 

(1913). The rule later “gained express statutory force, and 

was incorporated into Chapter 11 of the Bankruptcy Code 

adopted in 1978” as 11 U.S.C. § 1129(b)(2)(B)(ii). Norwest, 

485 U.S. at 202.

Before the adoption of BAPCPA in 2005, it was clear 

that “no Chapter 11 reorganization plan can be confirmed 

over the creditors’ legitimate objections (absent certain 

conditions not relevant here) if it fails to comply with the 

absolute priority rule.” Id. At that time, the absolute priority 

rule provided:

[T]he condition that a plan be fair and 

equitable with respect to a class [of creditors] 

includes the following requirements:

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ZACHARY V. CALIFORNIA BANK & TRUST 7

. . . .

(B) With respect to a class of unsecured 

claims–

(i) the plan provides that each holder 

of a claim of such class receive or 

retain on account of such claim 

property of a value, as of the effective 

date of the plan, equal to the allowed 

amount of such claim; or

(ii) the holder of any claim or interest 

that is junior to the claims of such 

class will not receive or retain under 

the plan on account of such junior 

claim or interest any property.

11 U.S.C. § 1129(b)(2)(B)(ii) (1994) (emphasis added). 

Thus, under the pre-BAPCPA Bankruptcy Code, it was clear 

that “every unsecured creditor must be paid in full before the 

debtor can retain ‘any property’ under a plan.” Ice House, 

751 F.3d at 737 (quoting 11 U.S.C. § 1129(b)(2)(B)(ii)).

B. Amendment of the absolute priority rule by 

BAPCPA.

Three provisions of the post-BAPCPA Bankruptcy Code 

intertwine to implement the absolute priority rule. First, 

§ 541, which was not altered by BAPCPA, defines an estate 

in bankruptcy as “comprised of all” the property enumerated 

in that section, “wherever located and by whomever held,” 

including “all legal or equitable interests of the debtor in 

property as of the commencement of the case.” 11 U.S.C. 

§ 541(a), (a)(1) (emphasis added). Under this section, the 

“property of the estate,” and, therefore, the property subject 

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8 ZACHARY V. CALIFORNIA BANK & TRUST

to the absolute priority rule in chapter 11 cases, is “the 

property the debtor owned ‘as of the commencement of the 

case.’” Ice House, 751 F.3d at 737–38 (quoting 11 U.S.C. 

§ 541(a)(1)).

The second relevant provision is § 1115, which was 

added in 2005 by BAPCPA. Pub. L. No. 109-8, § 321, 119 

Stat. 23, 94–95 (2005). Section 1115, which only applies to 

individual chapter 11 proceedings, adds to the § 541 

“property of the estate” certain property obtained by the 

debtor “after the commencement of the case”:

In a case in which the debtor is an individual, 

property of the estate includes, in addition to 

the property specified in section 541–

(1) all property of the kind specified in 

section 541 that the debtor acquires after 

the commencement of the case but before 

the case is closed, dismissed, or 

converted to a case under chapter 7, 12, 

or 13, whichever occurs first; and

(2) earnings from services performed by 

the debtor after the commencement of the 

case but before the case is closed, 

dismissed, or converted to a case under 

chapter 7, 12, or 13, whichever occurs 

first.

11 U.S.C. § 1115(a) (emphasis added).

Finally, BAPCPA amended the absolutely priority rule 

itself, adding the underscored language to 

§ 1129(b)(2)(B)(ii):

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ZACHARY V. CALIFORNIA BANK & TRUST 9

[T]he condition that a plan be fair and 

equitable with respect to a class [of creditors] 

includes the following requirements:

. . . .

(B) With respect to a class of unsecured 

claims–

(i) the plan provides that each holder 

of a claim of such class receive or 

retain on account of such claim 

property of a value, as of the effective 

date of the plan, equal to the allowed 

amount of such claim; or

(ii) the holder of any claim or interest 

that is junior to the claims of such 

class will not receive or retain under 

the plan on account of such junior 

claim or interest any property, except 

that in a case in which the debtor is 

an individual, the debtor may retain 

property included in the estate under 

section 1115, subject to the 

requirements of subsection (a)(14) of 

this section.

Pub. L. No. 109-8, § 321, 119 Stat. 23, 95 (emphasis added).

The new clauses in subsection (B)(ii) plainly create an 

exception to the absolute priority rule that applies only to a 

chapter 11 “case in which the debtor is an individual.” 

11 U.S.C. § 1129(b)(2)(B)(ii). But the question is, what is 

the exception’s scope? Or, put another way, what property 

may an individual chapter 11 debtor retain “without running 

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10 ZACHARY V. CALIFORNIA BANK & TRUST

afoul of the absolute priority rule”? In re Friedman, 466 

B.R. at 487 (Jury, Bankr. J., dissenting).

C. Post-BAPCPA case law.

“A significant split of authorities has developed 

nationally among the bankruptcy courts” regarding the 

answer to this question. In re Maharaj, 681 F.3d 558, 563 

(4th Cir. 2012) (describing division). Two conflicting 

positions have emerged: the “broad view” and the “narrow 

view.” Id.

Courts applying the broad view hold that

by including in § 1129(b)(2)(B)(ii) a crossreference to § 1115 (which in turn references 

§ 541, the provision that defines the property 

of a bankruptcy estate), Congress intended to 

include the entirety of the bankruptcy estate 

as property that the individual debtor may 

retain, thus effectively abrogating the 

absolute priority rule in Chapter 11 for 

individual debtors.

Id. Under this view, an individual debtor is entitled to retain 

most prepetition and postpetition property and nonetheless 

cram down a plan over an unsecured creditor’s objection. 

See, e.g., In re Friedman, 466 B.R. at 482; In re Anderson, 

No. 11-61845-11, 2012 WL 3133895, at *7 n.6 (Bankr. D. 

Mont. Aug. 1, 2012); In re Shat, 424 B.R. 854, 868 (Bankr. 

D. Nev. 2010); In re Roedemeier, 374 B.R. 264, 276 (Bankr. 

D. Kan. 2007).

Courts applying the narrow view instead hold “that the 

BAPCPA amendments merely have the effect of allowing 

individual Chapter 11 debtors to retain property and earnings 

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ZACHARY V. CALIFORNIA BANK & TRUST 11

acquired after the commencement of the case that would 

otherwise be excluded under § 541(a)(6) & (7).” In re 

Maharaj, 681 F.3d at 563. Under this view, an individual 

debtor may not cram down a plan that would permit the 

debtor to retain prepetition property that is not excluded 

from the estate by § 541, but may cram down a plan that 

permits the debtor to retain only postpetition property.

A split panel of the Ninth Circuit BAP accepted the 

broad view in In re Friedman, 466 B.R. at 484. But, all of 

our sister circuits that have considered the issue have 

adopted the narrow view,2 as have a sizeable majority of the 

district, bankruptcy appellate, and bankruptcy courts.3 We 

 2 See Ice House, 751 F.3d at 740 (“We therefore hold that the absolutepriority rule continues to apply to pre-petition property of individual 

debtors in Chapter 11 cases.”); In re Lively, 717 F.3d 406, 410 (5th Cir.

2013) (“The absolute priority rule, in particular, has been a cornerstone

of equitable distribution for Chapter 11 creditors for over a century. We 

must presume Congress was well aware of that rule and, in the absence 

of a clearer directive, modified § 1129(b)(2)(B)(ii) in order to refine it, 

not reverse it, for individual debtors.”); In re Stephens, 704 F.3d 1279, 

1287 (10th Cir. 2013) (“[W]e decline to find an implied repeal [of the 

absolute priority rule] here.”); In re Maharaj, 681 F.3d at 575 (“[W]e 

believe that Congress did not intend to abrogate the absolute priority rule 

for individual Chapter 11 debtors.”).

3 See, e.g., In re Woodward, 537 B.R. 894, 901 (B.A.P. 8th Cir. 2015); 

In re Brown, 505 B.R. 638, 648-49 (E.D. Pa. 2014); In re Tucker, 

479 B.R. 873, 877-78 (Bankr. D. Or. 2012); In re Arnold, 471 B.R. 578, 

613-14 (Bankr. C.D. Cal. 2012); In re Borton, No. 09-00196-TLM, 2011 

WL 5439285, at *4 (Bankr. D. Idaho Nov. 9, 2011); In re Kamell, 451 

B.R. 505, 512 (Bankr. C.D. Cal. 2011); In re Draiman, 450 B.R. 777, 

821 (Bankr. N.D. Ill. 2011); In re Stephens, 445 B.R. 816, 820-21

(Bankr. S.D. Tex. 2011); In re Karlovich, 456 B.R. 677, 682 (Bankr. 

S.D. Cal. 2010); and In re Gbadebo, 431 B.R. 222, 230 (Bankr. N.D. 

Cal. 2010). But see, e.g., In re Friedman, 466 B.R. at 482; In re 

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12 ZACHARY V. CALIFORNIA BANK & TRUST

today agree with our sister circuits and overrule In re

Friedman.

D. Interpretation of the BAPCPA amendments.

BAPCPA added § 1115 as an entirely new provision of 

the Bankruptcy Code. That section “expands the definition 

of ‘property of the estate’ in Chapter 11 cases to include, for 

the first time, property obtained by the debtor ‘after the 

commencement of the case.’ And all of that property, absent 

some other amendment to the Code, would be subject to the 

absolute-priority rule.” Ice House, 751 F.3d at 738 (quoting 

11 U.S.C. § 1115(a)(1), (2)). The new language in 

§ 1129(b)(2)(B)(ii) added by BAPCPA obviously creates 

“an exception to the absolute-priority rule,” but less obvious 

is “the exception’s scope.” Id. The key to that question is 

determining what the word “included” means in the phrase 

of § 1129(b)(2)(B)(ii) stating that “the debtor may retain 

property included in the estate under section 1115.”

The Friedman majority determined:

“Included” is not a word of limitation. To 

limit the scope of estate property in §§ 1129 

and 1115 would require the statute to read 

“included, except for the property set out in 

Section 541” (in the case of 

§ 1129(b)(2)(B)(ii)), and “in addition to, but 

not inclusive of the property described in

Section 541” (in the case of § 1115).

 

Anderson, 2012 WL 3133895, at *7 n.6; In re Shat, 424 B.R. at 868; and 

In re Roedemeier, 374 B.R. at 276.

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ZACHARY V. CALIFORNIA BANK & TRUST 13

466 B.R. at 482 (footnote omitted). In contrast, the Sixth 

Circuit’s opinion in Ice House held:

The critical language in § 1129(b)(2)(B)(ii) is 

that “the debtor may retain property included

in the estate under section 1115.” And the 

key word within that language is “included.” 

“Include” is a transitive verb, which means it 

“shows action, either upon someone or 

something.” Shertzer, Elements of Grammar

26 (1986). The action described by “include” 

is either “to take in as a part, an element, or a 

member” (first definition) or “to contain as a 

subsidiary or subordinate element” (second 

definition). The American Heritage 

Dictionary 913 (3d ed. 1992). The first 

definition (“to take in”) describes genuine 

action—grabbing something and making a 

part of a larger whole—whereas the second 

definition (“to contain”) lends itself, more 

dryly, to a description of things that are 

already there— “the duties of a fiduciary 

include. . . .” The first definition is plainly 

the better fit in § 1129(b)(2)(B)(ii): 

converted into the active voice, 

§ 1129(b)(2)(B)(ii) refers to property that 

§ 1115 includes in the estate, which naturally 

reads as “property that § 1115 takes into the 

estate,” rather than as “property that § 1115 

contains in the estate.” Thus—employing 

this definition and converted into the active 

voice—§ 1129(b)(2)(B)(ii) provides that “the 

debtor may retain property that § 1115 takes 

into the estate.”

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14 ZACHARY V. CALIFORNIA BANK & TRUST

Ice House, 751 F.3d at 738–39 (alterations omitted). Under 

this reading, “what § 1115 takes into the estate is property 

‘that the debtor acquires after the commencement of the 

case,’” and it is only “that property” that “‘the debtor may 

retain’ when his unsecured creditors are not fully paid.” Id.

at 739 (quoting 11 U.S.C. §§ 1115(a), 1129(b)(2)(B)(ii)) 

(internal punctuation omitted).

We agree with the Sixth Circuit. Section 1115 and the 

new clauses in § 1129(b)(2)(B)(ii) were both added by 

BAPCPA. Reading these two provisions as defining a new 

class of property that is exempt from the absolute priority 

rule nicely harmonizes the new provisions.4 See In re Lively, 

717 F.3d 406, 409 (5th Cir. 2013) (“[W]e are inclined to 

 4 Some courts and commentators have suggested that the cross-reference 

in the second new clause in § 1129(b)(2)(B)(ii) to § 1129(a)(14), a 

provision involving domestic support obligations, is a scrivener’s error 

and was meant to refer to § 1129(a)(15), which involves a new “best 

efforts” requirement added to chapter 11 by BAPCPA. See, e.g., In re 

Lucarelli, 517 B.R. 42, 47 n.2 (Bankr. D. Conn. 2014); In re Lively, 467 

B.R. 884, 890 n.3 (Bankr. S.D. Tex. 2012); In re Shat, 424 B.R. at 860 

n.21; Ralph Brubaker, The Absolute Priority Rule for Individual Chapter 

11 Debtors: To Be or Not to Be?, 32 No. 10 Bankr. L. Letter, at 5 (Oct.

2012) (“[A]s all fully recognize, the cross-reference in the absolute 

priority rule amendment to § 1129(a)(14) (dealing with full payment of

domestic support obligations) was obviously a drafting error.”). We 

need not decide that issue today. We note that although the reference to 

(a)(14) may have been a scrivener’s error, it is “not an entirely absurd 

mixup. . . . One could easily assume that Congress wished to protect 

domestic support creditors by not allowing a debtor to keep any 

postpetition earnings—a form of Section 1115 property—so long as any 

domestic support obligation was not current.” In re Shat, 424 B.R. at 

860 n.21.

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ZACHARY V. CALIFORNIA BANK & TRUST 15

agree with the bankruptcy court in this case that the ‘narrow’ 

interpretation is unambiguous and correct.”).

The history of the absolute priority rule also strongly 

supports the narrow view. Congress repealed the absolute 

priority rule in 1952, only to reinstate it in 1978, 

demonstrating that when it intends to abrogate the rule, it 

knows how to do so explicitly. Compare H.R. Rep. No. 82-

2320 (1952), reprinted in 1952 U.S.C.C.A.N. 1960, 1981–

82, with Bankruptcy Code of 1978, Pub. L. No. 95-598, 

§ 1129, 92 Stat. 2549, 2635–38 (codified in scattered 

sections of 11 and 28 U.S.C.).5 More importantly, the 

 5 The legislative history of the BAPCPA also bolsters the view that 

Congress did not intend to repeal the absolute priority rule. The 

Judiciary Committee Report describes “various consumer protection 

reforms” in BAPCPA, such as penalizing “a creditor who unreasonably 

refuses to negotiate” and requiring certain credit solicitations to “include 

enhanced consumer disclosures.” H.R. Rep. No. 109-31(I), pt. 1, at 2

(2005), reprinted in 2005 U.S.C.C.A.N. 88, 89. But this list of 

protections does not include any supposed repeal of the absolute priority 

rule. It seems unlikely that Congress would address a cornerstone rule 

of bankruptcy practice “in the most oblique way possible, and yet omit 

any mention of this remedy from the legislative history.” In re Maharaj, 

681 F.3d at 575; see also Dewsnup v. Timm, 502 U.S. 410, 419 (1992) 

(“Furthermore, this Court has been reluctant to accept arguments that 

would interpret the [Bankruptcy] Code, however vague the particular 

language under consideration might be, to effect a major change in preCode practice that is not the subject of at least some discussion in the 

legislative history.”); In re Bonner Mall P’ship, 2 F.3d 899, 913 (9th Cir. 

1993) (“Where the text of the Code does not unambiguously abrogate 

pre-Code practice, courts should presume that Congress intended it to 

continue unless the legislative history dictates a contrary result.”) (citing 

Dewsnup, 502 U.S. at 419). It also seems unlikely that Congress would 

facilitate cramdowns, typically objected to by creditors, in an act 

designed “to correct perceived abuses of the bankruptcy system.” 

Ransom v. FIA Card Servs., 562 U.S. 61, 64 (2011) (quoting Milavetz, 

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16 ZACHARY V. CALIFORNIA BANK & TRUST

Supreme Court has expressly warned against finding implied 

repeal of provisions of the Bankruptcy Code. United Sav. 

Ass’n of Tex. v. Timbers of Inwood Forest Assocs., Ltd., 484 

U.S. 365, 380 (1988) (“Such a major change in the existing 

rules would not likely have been made without specific 

provision in the text of the statute; it is most improbable that 

it would have been made without even any mention in the 

legislative history.”) (citation omitted); see also In re 

Maharaj, 681 F.3d at 571 (“The canon against implied 

repeal is particularly strong in the field of bankruptcy law.”).

Courts adopting the broad view have stressed that 

“Congress in adopting BAPCPA’s individual debtor chapter 

11 provisions borrowed provisions from chapter 13,” which 

does not have an absolute priority rule. In re Friedman, 466 

B.R. at 483 (comparing, inter alia, §§ 1123(a)(8) and 

1322(a)(1), §§ 1141(d)(5)(A) and 1328(a), and §§ 1127(e) 

and 1329(a)); see also In re Shat, 424 B.R. at 868 (noting

“the host of change[s] to chapter 11 with respect to 

individuals, all made with the goal of shaping an individual’s 

chapter 11 case to look like a chapter 13 case”); In re 

Roedemeier, 374 B.R. at 275 (“Many of the BAPCPA’s 

changes to Chapter 11 apply only to individual debtors and 

are clearly drawn from the Chapter 13 model.”). But if the 

BAPCPA amendments were intended to abrogate the 

absolute priority rule for chapter 11 individual debtors, 

Congress could have achieved that goal in a far more 

straightforward manner. Instead of adding language to 

§ 1129(b)(2)(B)(ii), Congress simply could have made that 

provision inapplicable to individual chapter 11 

 

Gallop & Milavetz, P.A. v. United States, 559 U.S. 229, 231-32 (2010)); 

see also In re Friedman, 466 B.R. at 490 (Jury, Bankr. J., dissenting) 

(“[T]he purpose behind BAPCPA was to have debtors pay more, not 

less.”).

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ZACHARY V. CALIFORNIA BANK & TRUST 17

reorganizations. See In re Lively, 717 F.3d at 410 

(describing broad view as “a startling, and most indirect, 

way for Congress to have effected partial implicit repeal of 

the very provision that the section amended”). Or Congress 

could have raised the debt limits for chapter 13 cases, 

ushering more individuals into that regime. See In re 

Maharaj, 681 F.3d at 573 (“Congress could have effected 

the changes that Debtors argue it sought in a far less 

awkward and convoluted manner by simply raising the 

Chapter 13 debt limits and making additional individuals 

eligible to proceed under that chapter.”); see also Midlantic 

Nat’l Bank v. N.J. Dep’t of Envtl. Prot., 474 U.S. 494, 501 

(1986) (“The normal rule of statutory construction is that if 

Congress intends for legislation to change the interpretation 

of a judicially created concept, it makes that intent specific. 

The Court has followed this rule with particular care in 

construing the scope of bankruptcy codifications.”) (citation 

omitted).

We acknowledge that retaining the absolute priority rule 

in chapter 11 cases works a “double whammy” on a debtor 

because, under the BAPCPA amendments to § 1129(a)(15), 

he “must dedicate at least five years’ disposable income to 

the payment of unsecured creditors, and—unlike a debtor in 

Chapter 13—is also subject to the absolute-priority rule (and 

thus cannot retain any pre-petition property) if he does not 

pay those creditors in full.” Ice House, 751 F.3d at 740. But 

the broad view could exact a heavy penalty on a “crammed 

down” creditor, as this case illustrates. Our task is not to 

balance the equities, however, but to interpret the 

Bankruptcy Code. See Norwest, 485 U.S. at 209 (noting that 

relief from any unfairness in the statutory scheme “cannot 

come from a miscontruction of the applicable bankruptcy 

laws, but rather, only from action by Congress”). We 

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18 ZACHARY V. CALIFORNIA BANK & TRUST

conclude today that the BAPCPA amendments do not 

impliedly repeal the long-standing absolute priority rule.

CONCLUSION

The order of the bankruptcy court sustaining California 

Bank’s objection to the Debtors’ plan is AFFIRMED.

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