Opinion ID: 784317
Heading Depth: 2
Heading Rank: 13

Heading: Express Preemption under Section 1123(a)(5) and 1142(a)

Text: 115 The phrase notwithstanding any otherwise applicable nonbankruptcy law in § 1123(a) indicates that Congress intended that there be express preemption under § 1123(a). The notwithstanding formulation is commonly used in other parts of the Bankruptcy Code to indicate express preemption, and there is little reason to think that it is used in § 1123(a) to indicate anything else. See, e.g., 11 U.S.C. § 363(b)(2)(A)(notwithstanding subsection (a) of [section 7A of the Clayton Act]) and (b)(2)(B) (notwithstanding subsection (b) of [section 7A of the Clayton Act]); § 365(e)(1) (Notwithstanding a provision in an executory contract or unexpired lease, or in applicable law, an executory contract or unexpired lease of the debtor may not be terminated or modified[.]), (f)(1) (notwithstanding a provision in an executory contract or unexpired lease of the debtor, or in applicable law), and (f)(3)(Notwithstanding a provision in... applicable law that terminates or modifies... such contract or lease. . . .); § 1124(2) (notwithstanding any ... applicable law that entitles the holder of such claim or interest to demand or receive accelerated payment); § 1142(a) (Notwithstanding any otherwise applicable nonbankruptcy law, rule or regulation relating to financial condition....). The issue is thus not whether there is express preemption under § 1123(a), but rather its extent. As the Court phrased it in Medtronic, our task is to determine the scope of the statute's pre-emption. 518 U.S. at 485, 116 S.Ct. 2240. 116 Section 1123(a) specifies, in seven subsections, what a reorganization plan in a Chapter 11 bankruptcy must do. (Section 1123(b), which is not before us, specifies what such a plan may do.) Subsection 1 requires a plan to designate classes of claims. Subsection 2 requires a plan to specify any class of claims or interests that is not impaired under the plan. Subsection 3 requires that the plan specify the treatment of any impaired class of claims or interests. Subsection 4 requires that the plan provide for the same treatment of claims or interests within a particular class, unless a holder of a particular claim or interest agrees otherwise. Subsection 5, at issue in this case, requires that the plan provide adequate means for the plan's implementation. Subsection 6 requires that the plan provide for inclusion in a debtor corporation's charter provisions that prohibit the issuance of nonvoting securities and that provide for appropriate distribution of voting interests among classes of securities. Finally, subsection 7 requires that the plan contain only provisions that are consistent with the interests of creditors and equity security holders, and with public policy with respect to selection of officers, directors and trustees. 117 Sections 1123(a) and 1142(a) were enacted at the same time, as part of the 1978 Bankruptcy Code. Both sections are directly concerned with the contents and implementation of a reorganization plan under Chapter 11. Section 1123(a) specifies what a confirmable plan must do. Among other things, under § 1123(a)(5) it must provide for adequate means for the plan's implementation. Section 1142(a) in turn describes the duty of an entity charged with implementing a confirmed plan. As enacted in 1978, § 1142(a) contained an express preemption clause providing that those charged with implementing a confirmed plan could perform that duty notwithstanding any otherwise applicable nonbankruptcy law, rule, or regulation relating to financial condition. As enacted in 1978, § 1123(a) contained no such clause. 118 When the 1984 amendments to the Bankruptcy Code were adopted, there was absolutely no indication that those amendments were intended by Congress to make any important changes to the 1978 Code. As stated generally by the House Judiciary Committee Report prepared in 1980, in connection with what eventually became the 1984 amendments, In each case the change proposed is consistent with policies adopted by Congress in its enactment of the Bankruptcy Reform Act [of 1978]. House Comm. on the Judiciary, An Act to Correct Technical Errors, Clarify and Make Minor Substantive Changes to Public Law 95-598, H.R.Rep. No. 96-1195, at 1 (1980). The Committee Report stated specifically with respect to the proposed amendment of § 1123(a), [t]he amendment makes it clear that the rules governing what is to be contained in the reorganization are those specified in this section; deletes a redundant word; and makes several stylistic changes. Id. at 22. True to the title it appeared under in 1983, the 1984 amendment to § 1123(a) was purely technical. Subtitle I-Technical Amendments to Title 11, S. 1013, 129 Cong. Rec. 9986 (1983). 119 It is thus clear that the addition of the notwithstanding clause by amendment in 1984 was not intended by Congress to make any substantial change to the 1978 Code. In particular, it is clear that the notwithstanding clause of § 1123(a) was not intended to change the express preemptive effect of a confirmable reorganization plan. The 1978 Code had already indicated in § 1142(a) the express preemptive effect of a confirmed reorganization plan: The plan is to be implemented notwithstanding any otherwise applicable nonbankruptcy law, rule, or regulation relating to financial condition. As we read the 1984 amendment to § 1123(a), the newly added notwithstanding clause was intended to be coextensive with the already-existing notwithstanding clause of § 1142(a). 120 Our conclusion is based not only on the presumption that Congress would not have made an important change in the Code without clearly indicating its intent to do so. See, e.g., Midlantic, 474 U.S. 494, 106 S.Ct. 755 (1986); de la Cruz, 523 U.S. 213, 118 S.Ct. 1212 (1998). Our conclusion is also based on the overall structure of the Code. It makes perfect sense that the express preemptive scope of what must be included in a confirmable plan, specified in § 1123(a), would be the same as the express preemptive scope of what is actually included in a confirmed plan, specified in § 1142(a). It also makes perfect sense that the express preemptive scope of what must be in a confirmable and confirmed plan would be laws relating to financial condition. 121 Our conclusion is reinforced by the legislative history and actual language of §§ 1123(a) and 1142(a) in the 1978 Act and 1984 amendments. In his floor statement leading up to the adoption of the 1978 Act, Senator DeConcini explicitly linked the prescribed contents of a confirmable plan under § 1123(a) and the preemptive effect of a confirmed plan under § 1142(a). Senator DeConcini nowhere in his lengthy statement discussed §§ 1123(a) and 1142(a) independently from one another. Two years later, in 1980, the House Committee Report stated that proposed legislation, which was eventually enacted as the 1984 amendment to § 1123(a), makes clear that the rules governing what is to be contained in the reorganization plan are those specified in this section. The addition of the notwithstanding clause to § 1123(a) thus made clear that the rules governing what must be in a confirmable plan are contained in § 1123(a) and not in otherwise applicable nonbankruptcy laws. That is, a plan proposed in conformity with § 1123(a) could be confirmed, and a confirmed plan would then have the preemptive effect precisely specified in § 1142(a). 122 Further, the phrase adequate means for the plan's execution  used in the 1978 text of § 1123(a) was changed to adequate means for the plan's implementation  by the 1984 amendment. At the same time, in a parallel change of wording in § 1142(a), the heading  Execution of the Plan used as the heading for the 1978 text of § 1142(a) was changed to  Implementation of the Plan by the 1984 amendment. We regard these parallel word changes in §§ 1123(a) and 1142(a) as additional evidence that Congress had both of these sections in mind during the 1984 amending process, and that it intended that the two sections be read in a parallel or complementary manner. 123 We therefore conclude that the notwithstanding clause of § 1123(a) expressly preempts otherwise applicable nonbankruptcy law, and that the scope of that express preemption is the same as under the notwithstanding clause of § 1142(a). Otherwise applicable nonbankruptcy laws relating to financial condition are expressly preempted under both §§ 1123(a) and 1142(a). The bankruptcy court did not apply this express preemption standard to Proponents' Plan. We believe that it is most appropriate for the bankruptcy court to apply this standard in the first instance. We therefore remand for that determination.