Opinion ID: 204196
Heading Depth: 2
Heading Rank: 1

Heading: Sprint's Appeal

Text: Sprint raises only one issue on appeal: it asserts that the plan improperly gives property to DBSD's shareholder without fully satisfying Sprint's senior claim, in violation of the absolute priority rule. See 11 U.S.C. § 1129(b)(2)(B). That rule provides that a reorganization plan may not give property to the holders of any junior claims or interests on account of those claims or interests, unless all classes of senior claims either receive the full value of their claims or give their consent. Id.; see In re Coltex Loop Cent. Three Partners, L.P., 138 F.3d 39, 42 (2d Cir.1998); see also In re Armstrong World Indus., Inc., 432 F.3d 507, 512 (3d Cir. 2005). Because the existing shareholder received shares and warrants on account of its junior interest, Sprint argues, Sprint's class of general unsecured creditors had a right to receive full satisfaction of their claims or at least an amount sufficient to obtain approval from the class. But the plan provided neither, and so Sprint asks us to vacate the order confirming it or to provide other relief that would satisfy Sprint's claim.
Before we can address the merits of Sprint's appeal, we must decide whether Sprint has standing to bring it. The current Bankruptcy Code prescribes no limits on standing beyond those implicit in Article III of the United States Constitution. See In re Gucci, 126 F.3d 380, 388 (2d Cir.1997). Congress has given us jurisdiction over all final decisions, judgments, orders, and decrees of the district courts in bankruptcy cases, 28 U.S.C. § 158(d)(1), which courts in turn have jurisdiction to review all final judgments, orders, and decrees of the bankruptcy courts, id. § 158(a)(1). Nevertheless, for practical reasons this Court and others have adopted the general rule, loosely modeled on the former Bankruptcy Act, that in order to have standing to appeal from a bankruptcy court ruling, an appellant must be `a person aggrieved'a person `directly and adversely affected pecuniarily' by the challenged order of the bankruptcy court. [3] Int'l Trade Admin. v. Rensselaer Polytechnic Inst., 936 F.2d 744, 747 (2d Cir.1991) (citation omitted). An appellant like Sprint, therefore, must show not only injury in fact under Article III but also that the injury is direct[] and financial. Kane v. Johns-Manville Corp., 843 F.2d 636, 642 & n. 2 (2d Cir.1988). As a general rule, we grant standing to creditors . . . appeal[ing] orders of the bankruptcy court disposing of property of the estate because such orders directly affect the creditors' ability to receive payment of their claims. Id. at 642; see In re Gucci, 126 F.3d at 388. In Kane, for instance, we did not hesitate to grant standing to an asbestos-injury claimant who appealed the confirmation of a plan of reorganization. The plan in that case was even more generous to the appellant than the plan in this case, since it promised him the full amount of whatever compensatory damages he is awarded. Kane, 843 F.2d at 640. The Court, however, held that Kane was an aggrieved party entitled to appeal: as a creditor, [he had] economic interests . . . directly impaired by the Plan because the plan limited his recourse to the courts, eliminated the possibility of punitive damages, and made his recovery subject to the Trust's being fully funded. Id. at 642. Other courts have generally found standing for impaired creditors [4] when their interests are directly and pecuniarily affected by the order of the Bankruptcy Court. In re Combustion Eng'g, Inc., 391 F.3d 190, 223-24 (3d Cir. 2004); see also In re P.R.T.C., Inc., 177 F.3d 774, 778 (9th Cir.1999) (noting that creditors have a direct pecuniary interest in a bankruptcy court's order transferring the assets of the estate). We likewise hold that Sprint has standing to appeal the confirmation of the plan in this case. Before confirmation, Sprint had a claim that the bankruptcy court valued at $2 million for voting purposes. [5] After confirmation, however, Sprint stood to receive property worth less than half (between 4% and 46%) of that amount. Therefore, confirmation of the plan affected Sprint directly and financially. The appellees challenge the above analysis from two different perspectives, looking both at the confirmation of the plan as a whole and at the gifting provision that Sprint protests. First, and more broadly, they argue that confirmation could not have harmed Sprint's interests because those interests were already worthless: with insufficient value in DBSD to pay off the secured creditors, Sprint's unsecured claim entitled it to nothing. Second, and more narrowly, they argue that the gift to the existing shareholder did not harm Sprint's interests because the absolute priority rule requires either that the objecting class receive the full value of its claim (which would more than double Sprint's recovery) or that junior classes receive nothing (which could lead to a reduced recovery for Sprint), so even a strict interpretation of that rule would not guarantee any benefit for Sprint. None of our cases directly address the level of generality at which we should consider standing; because we reject the appellees' analysis at both levels, however, we need not decide whether either perspective is generally preferable. Taking the broader perspective first, we decline to withhold standing merely because the bankruptcy court's valuation of DBSD put Sprint's claim under water. By the bankruptcy court's estimatewhich we accept for purposes of this appeal DBSD is not worth enough to cover even the Second Lien Debt, much less the claims of unsecured creditors like Sprint who stand several rungs lower on the ladder of priority. But none of our prior appellate standing decisionsat least none involving creditorshave turned on estimations of valuation, or on whether a creditor was in the money or out of the money. We have never demanded more to accord a creditor standing than that it has a valid and impaired claim. Cosmopolitan Aviation, the primary decision on which the appellees rely for their broader argument, is easily distinguishable. See In re Cosmopolitan Aviation Corp., 763 F.2d 507, 513 (2d Cir.1985), abrogated on other grounds by Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P'ship, 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993). In that case, a state court had held that a debtor's lease had expired before it filed for bankruptcy. Id. at 511. The bankruptcy court found that the debtor was hopelessly insolvent, with or without the lease, and ordered the debtor's liquidation. Id. The debtor did not then appeal. It appealed only a later order to turn over the landapparently solely for purposes of delay. Id. at 512-13. We held that, because the debtor could no longer contest the first two rulings, it no longer had any interest in the land or even any right to continued existence, and therefore would suffer no injury from the turn-over. Id. at 513. Cosmopolitan Aviation is thus a far cry from this case, where the bankruptcy court provisionally allowed Sprint's claim against the debtor, where the plan already gives Sprint some recovery, and where Sprint has appealed the adverse order directly. The only case the appellees cite that comes close to denying a creditor standing is In re Ashford Hotels, Ltd., 235 B.R. 734 (S.D.N.Y.1999). But in that case the district court never accepted the appellants' attempts to characterize themselves as creditors. Id. at 738. The so-called creditors had sued the debtor in state court, not to win any damages but to rescind a contract under which they were liable to the debtor. Id. at 736. In the bankruptcy proceeding, they sought to stop funding the defense against their lawsuit and, after losing that attempt, they appealed. Id. at 737-38. The district court found that the appellants had no interest in the debtor besides their desire to stop the defense of the rescission lawsuit and thereby thwart the debtor from collecting against them. Id. at 738. Noting that other courts had found no standing where a party's interest in a Bankruptcy Court appeal is (only) that of a potential defendant to another lawsuit, the district court likewise denied standing to the appellants in that case, because they were not `directly and adversely affected pecuniarily' by the Bankruptcy Court's order except as adversaries to the Debtor's estate in other litigations. Id. at 739. That case is therefore nothing like this one, where Sprint is clearly a creditor (albeit one with an unliquidated claim) and where Sprint appeals seeking to enlarge its recovery, not to head off the collection of debts against it. The three additional district court decisions cited by the dissent are equally distinguishable. The first two do not involve creditors. In one, In re Taylor, the appellant was a chapter 7 debtor, see No. 00 Civ. 5021(VM), 2000 WL 1634371, at -2 (S.D.N.Y. Oct.30, 2000), a member of a class that often lacks standing in the bankruptcy court as well as on appeal, see In re 60 E. 80th St. Equities, Inc., 218 F.3d 109, 115-16 (2d Cir.2000). In the other, Freeman v. Journal Register Co., it was a shareholder of the debtor who appealed. See No. 09 Civ. 7296(JGK), 2010 WL 768942, at  (S.D.N.Y. Mar.8, 2010). Although this case does not require us to address shareholder standing in bankruptcy cases, we note that some courts have been more cautious in granting standing to shareholders than to creditors. See In re Troutman Enters., Inc., 286 F.3d 359, 364-65 (6th Cir.2002). Finally, in the third case, Bartel v. Bar Harbor Airways, Inc ., the appellant was a creditor, but a creditor whose claim the bankruptcy court disallowed because the debtor had already settled it. See 196 B.R. 268, 271-72 (S.D.N.Y. 1996). There is all the difference in the world between a claim that has already been disallowed by the bankruptcy court, as in Bartel, and one like Sprint's that remains allowed and pending, whatever appellate judges might guess about its chances of success. None of these decisions have any bearing on the case before us. We think it plain that we should not forbid all appeals by out-of-the-money creditors. Such a rule would bar a large percentage of creditors in bankruptcy court, perhaps a majority of them, from ever reaching the district court or this Court, however erroneous the orders of the bankruptcy court might be. In this case, for instance, members of only two classes could appeal under the appellees' proposed rulethe holders of the First Lien Debt and Second Lien Debteven though the plan involved twenty-six classes of claims and interests in ten different levels. The other twenty-four classes would have to be satisfied with whatever the plan awarded them. This would remain true, under the appellees' theory, even if the bankruptcy court had committed a fundamental error such as not allowing the out-of-the-money creditors to vote or not following another of the numerous requirements of § 1129. Such a result might benefit this Court's docket, but would disserve the protection of the parties' rights and the development of the law. We should not raise the standing bar so high, especially when it is a bar of our own creation and not one required by the language of the Code, which does not contain any express restrictions on appellate standing. Kane, 843 F.2d at 642. The appellees try to soften the negative consequences of their proposed rule by positing that a creditor in Sprint's position may appeal if it at least arguesas Sprint did in the district court but does not in this Courtthat the bankruptcy court undervalued the estate and that, under a true valuation, there was enough to cover its claim. But that rule would not separate appropriate from inappropriate appeals by creditors; it would only increase the number of appeals involving frivolous valuation arguments. It would turn an extremely harsh rule into an easily-evaded one. We decline either variation of the proposed rule. Even taking the narrower perspective, focusing not on the plan's confirmation overall but only on the gift to the existing shareholder that Sprint challenges under the absolute priority rule, we still find standing. Sprint argues that the absolute priority rule entitled it to the full value of its claim before the plan could give any equity to the existing shareholder. A plan like this one that gives property to a junior interest-holder (the existing shareholder) must provide the senior claim-holder (Sprint) with property of a value ... equal to the amount of [its] claim. 11 U.S.C. § 1129(b)(2)(B). When the law requires full payment, getting less than full payment surely constitutes direct and financial injury. The appellees respond that Sprint is entitled to nothing under the priority rules and only receives anything because it itself is the beneficiary of a gift under the plan. Rejecting this plan would not give anything to Sprint, they argue: although an alternative plan might give Sprint the full value of its claim in order to maintain the gift to the existing shareholder, an alternative plan might well cut out both Sprint and the shareholder entirely. But we rejected just such an argument in Kane. In that case, we accepted the possibility that the appellant, Kane, actually benefitted from the plan he was challenging and could have fared worse under alternative plans. 843 F.2d at 642. We refused, however, to allow this possibility to defeat Kane's appellate standing: Kane might receive more under this Plan than he would receive in liquidation. However, he might do better still under alternative plans. Since the... Plan gives Kane less than what he might have received, he is directly and adversely affected pecuniarily by it, and he therefore has standing to challenge it on appeal. Id. at 642. We did not investigate any particular alternative plan or estimate the likelihood that a plan more advantageous to Kane would actually be adopted if the existing plan were rejected; rather, we found it sufficient for appellate standing that Kane might receive more under a different plan. Here, too, Sprint might do better still under alternative plans. Id. As the bankruptcy court found, there were good business reasons for the ... gifts to the existing shareholder, DBSD I, 419 B.R. at 212 n. 140, and those reasons might well lead the secured creditors to support the gift even at the price of sufficiently favorable treatment for Sprint to secure its support. Put another way, if the absolute priority rule applies, Sprint may use its unsecured claim as leverage to increase its share in the reorganized entity if the good business reasons for the gift to the existing shareholder are still worth the cost. By rejecting the absolute priority rule, however, the bankruptcy court eliminated Sprint's leverage and reduced its potential financial recovery. To be sure, enforcing the absolute priority rule in this case would make the gift to the existing shareholder more costly to the plan proponents, who would have to pay more to Sprint in order to maintain that gift. Sprint therefore risks receiving nothing by enforcing the absolute priority rule because, if its demands outweigh the gift's perceived benefits to the senior creditors, the latter may cut out the junior classes entirely and leave nothing for Sprint. Whether such a risk is in Sprint's best interests, however, is not the issue here. See Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 207, 108 S.Ct. 963, 99 L.Ed.2d 169 (1988) ([I]t is up to the creditorsand not the courtsto accept or reject a reorganization plan which fails ... to honor the absolute priority rule.) For Sprint to have standing, we need only determine that, whatever the exact odds may be, Sprint at very least stands a reasonable chance of improving its position below. From whatever angle we look at the issue, therefore, we reject the appellees' challenge to Sprint's standing. Like the appellees, our dissenting colleague does not argue that all out-of-the-money creditors lack standing to challenge a plan for violating the absolute priority rule. See Dissent. Op. at 111. Rather, adopting an approach not argued by appellees, Judge Pooler finds that Sprint lacks standing because it is not only out of the money but has an unliquidated claim that might turn out to be valueless on its own merits. We do not find the ultimate merits of Sprint's claim against DBSD relevant. Standing to appeal in no way depends on the merits of the issue appealed, Warth v. Seldin, 422 U.S. 490, 500, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975), and certainly cannot depend on the merits of an issue that is not before us at all. Here, the bankruptcy court allowed Sprint's claim against a DBSD entity for voting purposes, see Fed. R. Bankr.P. 3018(a), which are the only purposes that matter at this stage. The plan's supporters did not object to this ruling, did not appeal it, and do not argue that any uncertainty about the merits of Sprint's underlying claim against the debtor should deny Sprint standing. They have good reason for their silence before us, as the dissent cites no decision where standing turned on the unliquidated status of a creditor's claim, or on an appellate court's assessment of the likely merits of such a claim. Even if it were appropriate for us to consider the merits or ultimate worth of Sprint's claim, we would have no way to make that determination, lacking any briefing from the parties or much information in the record on appeal regarding the merits of that claim, which will turn not only on the potential offset of its obligations to the government (as the dissent recognizes) but also on the date that the relevant DBSD subsidiary occupied a specific band of the transmission spectrum. See DBSD IV, 427 B.R. at 249 n. 4. Because the parties do not brief the issue and did not raise it below, moreover, our evaluation of Sprint's claim would require piecing together the evidence without a guide. A rule that would turn a claimant's standing to appeal a bankruptcy court's ruling on the as-yet-undetermined merits of the claimant's underlying claim would unduly complicate the standing determination, and require district and circuit courts prematurely to address the merits of issues the bankruptcy court has not yet addressed. We see no need for such an inquiry. The bankruptcy court's temporary allowance of Sprint's claim for voting purposes was enough to allow it to object below, where no one argues that Sprint lacked standing. The ultimate merits of that claim should not determine standing here, where we have less ability than the bankruptcy court to decide those merits. Accordingly, we conclude that Sprint has standing to appeal the denial of its objection to the confirmation of the reorganization plan. We therefore turn to the merits of that objection.
Sprint argues that the plan violated the absolute priority rule by giving shares and warrants to a junior class (the existing shareholder) although a more senior class (Sprint's class) neither approved the plan nor received the full value of its claims. See 11 U.S.C. § 1129(b)(2)(B). The appellees respond, and the courts below held, that the holders of the Second Lien Debt, who are senior to Sprint and whom the bankruptcy court found to be undersecured, were entitled to the full residual value of the debtor and were therefore free to gift some of that value to the existing shareholder if they chose to. DBSD I, 419 B.R. at 210; DBSD III, 2010 WL 1223109, at . We recently avoided deciding the viability of this gifting doctrine in a similar context, see In re Iridium Operating LLC, 478 F.3d 452, 460-61 (2d Cir.2007), but we now face the question squarely. We look through the district court to the bankruptcy court's decision, and review its analysis of law de novo. See In re Baker, 604 F.3d 727, 729 (2d Cir.2010). Long before anyone had imagined such a thing as Chapter 11 bankruptcy, it was already well settled that stockholders are not entitled to any share of the capital stock nor to any dividend of the profits until all the debts of the corporation are paid. Chi., Rock Island & Pac. R.R. v. Howard, 74 U.S. (7 Wall) 392, 409-10, 19 L.Ed. 117 (1868). In the days of the railroad barons, however, parties observed this rule in the breach. Senior creditors and original shareholders often cooperated to control the reorganization of a failed company, sometimes to make the process go smoothlyto encourage the old shareholders to provide new capital for the reorganization or to keep them from engaging in costly and delaying litigationor sometimes simply because the senior creditors and the old shareholders were the same parties. For their cooperation, the old owners would often receive or retain some stake in whatever entity arose from the reorganization. Junior creditors, however, often received little or nothing even though they technically stood above the old shareholders in priority. See John D. Ayer, Rethinking Absolute Priority After Ahlers, 87 Mich. L.Rev. 963, 970-71 (1989). In response to this practice, the Supreme Court developed a fixed principle for reorganizations: that all creditors were entitled to be paid before the stockholders could retain [shares] for any purpose whatever. N. Pac. Ry. Co. v. Boyd, 228 U.S. 482, 507-08, 33 S.Ct. 554, 57 L.Ed. 931 (1913). [A] plan of reorganization, the Court later stated, would not be fair and equitable which ... admitted the stockholders to participation, unless at very least the stockholders made a fresh contribution in money or in money's worth in return for `a participation reasonably equivalent to their contribution.' Marine Harbor Props., Inc. v. Mfrs. Trust Co., 317 U.S. 78, 85, 63 S.Ct. 93, 87 L.Ed. 64 (1942), quoting Case v. L.A. Lumber Prods. Co., 308 U.S. 106, 121, 60 S.Ct. 1, 84 L.Ed. 110 (1939). Courts came to call this the absolute priority rule. Ecker v. W. Pac. R.R. Corp., 318 U.S. 448, 484, 63 S.Ct. 692, 87 L.Ed. 892 (1943). The Bankruptcy Code incorporates a form of the absolute priority rule in its provisions for confirming a Chapter 11 plan of reorganization. For a district court to confirm a plan over the vote of a dissenting class of claims, the Code demands that the plan be fair and equitable, with respect to each class of claims ... that is impaired under, and has not accepted, the plan. 11 U.S.C. § 1129(b)(1). The Code does not define the full extent of fair and equitable, but it includes a form of the absolute priority rule as a prerequisite. According to the Code, a plan is not fair and equitable unless: 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.... Id. § 1129(b)(2)(B). Absent the consent of all impaired classes of unsecured claimants, therefore, a confirmable plan must ensure either (i) that the dissenting class receives the full value of its claim, or (ii) that no classes junior to that class receive any property under the plan on account of their junior claims or interests. Under the plan in this case, Sprint does not receive property of a value ... equal to the allowed amount of its claim. Rather, Sprint gets less than half the value of its claim. The plan may be confirmed, therefore, only if the existing shareholder, whose interest is junior to Sprint's, does not receive or retain any property under the plan on account of such junior ... interest. We hold that the existing shareholder did receive property under the plan on account of its interest, and that the bankruptcy court therefore should not have confirmed the plan. First, under the challenged plan, the existing shareholder receives property in the form of shares and warrants in the reorganized entity. The term property in § 1129(b)(2)(B) is meant to be interpreted broadly. See Ahlers, 485 U.S. at 208, 108 S.Ct. 963. But even if it were not, there is no doubt that any property includes shares and warrants like these. Second, the existing shareholder receives that property under the plan. The disclosure statement for the second amended plan, under the heading ARTICLE IV: THE JOINT PLAN, states: Class 9Existing Stockholder Interests .... In full and final satisfaction, settlement, release, and discharge of each Existing Stockholder Interest, and on account of all valuable consideration provided by the Existing Stockholder, including, without limitation, certain consideration provided in the Support Agreement, ... the Holder of such Class 9 Existing Stockholder Interest shall receive the Existing Stockholder Shares and the Warrants. (emphasis added). We need not decide whether the Code would allow the existing shareholder and Senior Noteholders to agree to transfer shares outside of the plan, for, on the present record, the existing shareholder clearly receives these shares and warrants under the plan. Finally, the existing shareholder receives its shares and warrants on account of its junior interest. The Supreme Court has noted that on account of could take one of several interpretations. See Bank of Am. Nat'l Trust & Sav. Ass'n v. 203 N. LaSalle St. P'ship, 526 U.S. 434, 449, 119 S.Ct. 1411, 143 L.Ed.2d 607 (1999). The interpretation most friendly to old equitywhich the Supreme Court rejected as beset with troubles ... exceedingly odd ... [and] unlikelyreads on account of as in exchange for. Id. at 449-50, 119 S.Ct. 1411. Even under this generous test, the existing shareholder here receives property on account of its prior junior interest because it receives new shares and warrants at least partially in exchange for its old ones. The passage from the plan quoted above states as much: the existing shareholder receives shares and warrants [i]n full and final satisfaction, settlement, release, and discharge of each Existing Stockholder Interest. The gift here even more easily satisfies the two less restrictive tests the Supreme Court examined (and viewed more favorably) in 203 North LaSalle, both of which read on account of to mean some form of because of. Id. at 450, 119 S.Ct. 1411. The existing shareholder received its property because of, and thus on account of, its prior interest, for the same reasons set forth above. [6] This conclusion is not undermined by the fact that the disclosure statement recites, and the district court found, additional reasons why the existing shareholder merited receiving the shares and warrants. First, a transfer partly on account of factors other than the prior interest is still partly on account of that interest. If Congress had intended to modify [`on account of'] with the addition of the words `only,' `solely,' or even `primarily,' it would have done so. In re Coltex Loop, 138 F.3d at 43. Upholding this principle in 203 North LaSalle, the Supreme Court refused to characterize a benefit given to existing shareholders merely as a detail of the broader transaction in which those shareholders also contributed new capital. 526 U.S. at 456, 119 S.Ct. 1411. Instead, receipt of property partly on account of the existing interest was enough for the absolute priority rule to bar confirmation of the plan. See id. at 456-58, 119 S.Ct. 1411. Second, the other reasons that the appellees assert drove the award of warrants and shares to old equity here are themselves on account of the existing shareholder's prior interest. The existing shareholder did not contribute additional capital to the reorganized entity, see, e.g., id. at 443, 119 S.Ct. 1411 (suggesting uncertainty about whether even new capital may suffice); rather, as the bankruptcy court explained, the gift aimed to ensure the existing shareholder's continued cooperation and assistance in the reorganization, DBSD I, 419 B.R. at 212 n. 140. The continued cooperation of the existing shareholder was useful only because of the shareholder's position as equity holder and the rights emanating from that position, In re Coltex Loop, 138 F.3d at 43; an unrelated third party's cooperation would not have been useful. And assistance sounds like the sort of future labor, management, or expertise that the Supreme Court has held insufficient to avoid falling under the prohibition of the absolute priority rule. Ahlers, 485 U.S. at 204, 108 S.Ct. 963. Thus, notwithstanding the various economic reasons that may have contributed to the decision to award property to old equity here, it is clear that the existing shareholder could not have gained [its] new position but for [its] prior equity position. In re Coltex Loop, 138 F.3d at 44. In sum, we conclude that the existing shareholder received property, that it did so under the plan, and that it did so on account of its prior, junior interest. The Supreme Court's interpretations of § 1129(b)(2)(B) give us confidence in ours. Although that Court has not addressed the exact scenario presented here under the codified absolute priority rule, its two post-Code cases on the rule are instructive. In both cases, the prior owners tried to avoid the absolute priority rule by arguing that they received distributions not on account of their prior interests but rather on account of the new value that they would contribute to the entity. See 203 N. LaSalle, 526 U.S. at 437, 119 S.Ct. 1411; Ahlers, 485 U.S. at 199, 108 S.Ct. 963. In both cases, the Supreme Court rejected those arguments. Although dictum in an earlier case had suggested that contributing new value could allow prior shareholders to participate in the reorganized entity, see Case, 308 U.S. at 121, 60 S.Ct. 1, the Court refused to decide whether § 1129(b)(2)(B) permitted such new-value exchanges. Instead, the Court held that neither future labor, experience and expertise, Ahlers, 485 U.S. at 199, 108 S.Ct. 963 (quotation marks omitted), nor capital contributions without benefit of market valuation, 203 N. LaSalle, 526 U.S. at 458, 119 S.Ct. 1411, could suffice to escape the absolute priority rule, even assuming the ongoing validity of the Case dictum. 203 North LaSalle and Ahlers indicate a preference for reading the rule strictly. Given that the Supreme Court has hesitated to allow old owners to receive new ownership interests even when contributing new value, it is doubtful the Court would allow old owners to receive new ownership without contributing any new value, as in this case. As the Court explained in Ahlers, the statutory language and the legislative history of § 1129(b) clearly bar any expansion of any exception to the absolute priority rule beyond that recognized in our cases at the time Congress enacted the 1978 Bankruptcy Code. Ahlers, 485 U.S. at 206, 108 S.Ct. 963. The Supreme Court has never suggested any exception that would cover a case like this one. The appellees, unsurprisingly, see the case in a different light. They contend that, under the gifting doctrine, the shares and warrants rightfully belonged to the secured creditors, who were entitled to share them with the existing shareholder as they saw fit. Citing In re SPM Manufacturing Corp., 984 F.2d 1305 (1st Cir. 1993), the appellees argue that, until the debts of the secured creditors are paid in full, the Bankruptcy Code's distributional priority scheme, as embodied in the absolute priority rule, is not implicated. DBSD was not worth enough, according to the bankruptcy court's valuation, to cover even the secured lenders' claims, much less those of unsecured creditors like Sprint. Therefore, as the bankruptcy court stated in ruling for the appellees, the `Gifting' Doctrineunder which senior secured creditors voluntarily offer a portion of their recovered property to junior stakeholders (as the Senior Noteholders did here)defeats Sprint's Absolute Priority Rule objection. DBSD I, 419 B.R. at 210. We disagree. Most fatally, this interpretation does not square with the text of the Bankruptcy Code. The Code extends the absolute priority rule to any property, 11 U.S.C. § 1129(b)(2)(B)(ii), not any property not covered by a senior creditor's lien. The Code focuses entirely on who receive[s] or retain[s] the property under the plan, id., not on who would receive it under a liquidation plan. And it applies the rule to any distribution under the plan on account of a junior interest, id., regardless of whether the distribution could have been made outside the plan, and regardless of whether other reasons might support the distribution in addition to the junior interest. We distinguish this case from In re SPM on several grounds. In that case, a secured creditor and the general unsecured creditors agreed to seek liquidation of the debtor and to share the proceeds from the liquidation. 984 F.2d at 1307-08. The bankruptcy court granted relief from the automatic stay and converted the case from Chapter 11 to a Chapter 7 liquidation. Id. at 1309. The bankruptcy court refused, however, to allow the unsecured creditors to receive their share under the agreement with the secured creditor, ordering instead that the unsecured creditors' share go to a priority creditor in between those two classes. Id. at 1310. The district court affirmed, but the First Circuit reversed, holding that nothing in the Code barred the secured creditors from sharing their proceeds in a Chapter 7 liquidation with unsecured creditors, even at the expense of a creditor who would otherwise take priority over those unsecured creditors. Id. at 1312-19. The first and most important distinction is that In re SPM involved Chapter 7, not Chapter 11, and thus involved a liquidation of the debtor, not a reorganization. Id. at 1309. Chapter 7 does not include the rigid absolute priority rule of § 1129(b)(2)(B). See In re Armstrong, 432 F.3d at 514. As the First Circuit noted, the distribution scheme of Chapter 7 does not come into play until all valid liens on the property are satisfied. In re SPM, 984 F.2d at 1312; see 11 U.S.C. § 726(a); Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 5, 120 S.Ct. 1942, 147 L.Ed.2d 1 (2000). In re SPM repeatedly emphasized the lack[] of statutory support for the argument against gifting in the Chapter 7 context. 984 F.2d at 1313; see id. at 1313-14 (finding no support in the Code for rejecting gifting). Under Chapter 11, in contrast, § 1129(b)(2)(B) provides clear statutory support to reject gifting in this case, and the distribution scheme of Chapter 11 ordinarily distributes all property in the estate (as it does here), including property subject to security interests, see 11 U.S.C. § 1129(b)(2)(A). Furthermore, the bankruptcy court in In re SPM had granted the secured creditor relief from the automatic stay, 984 F.2d at 1309, and treated the property in question as no longer part of the estate, id. at 1313. In a very real sense, the property belonged to the secured creditor alone, and the secured creditor could do what it pleased with it. Here, however, the relevant property has remained in the estate throughout, and has never belonged to the secured creditors outright. See United States v. Whiting Pools, Inc., 462 U.S. 198, 203-04, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983). For these reasons, therefore, assuming without deciding that the First Circuit's approach was correct in the context of Chapter 7a question not before uswe do not find it relevant to this case. See In re Armstrong, 432 F.3d at 514 (similarly distinguishing In re SPM ). Even if the text of § 1129(b)(2)(B) left any room for the appellees' view of the case, we would hesitate to accept it in light of the Supreme Court's long history of rejecting such views. That history begins at least as early as 1868, in Howard, 74 U.S. (7 Wall) 392. In that case, the stockholders and mortgagees of a failing railroad agreed to foreclose on the railroad and convey its property to a new corporation, with the old stockholders receiving some of the new shares. Id. at 408-09. The agreement gave nothing, however, to certain intermediate creditors, who sought a share of the distribution in the courts. Id. at 408. The stockholders defended their agreement with nearly the exact logic the appellees employ here: The road was mortgaged for near three times its value.... If, then, these stockholders have got anything, it must be because the bondholders have surrendered a part of their fund to them. If the fund belonged to the bondholders, they had a right so to surrender a part or a whole of it. And if the bondholders did so surrender their own property to the stockholders, it became the private property of these last; a gift, or, if you please, a transfer for consideration from the bondholders.... What right have these complainants to such property in the hands of the stockholders? Id. at 400. Even in 1868, however, the Supreme Court found that [e]xtended discussion of that proposition is not necessary. Id. at 414. Holders of bonds secured by mortgages as in this case, the Court noted, may exact the whole amount of the bonds, principal and interest, or they may, if they see fit, accept a percentage as a compromise in full discharge of their respective claims, but whenever their lien is legally discharged, the property embraced in the mortgage, or whatever remains of it, belongs to the corporation for distribution to other creditors. Id. Similarly, in this case, the secured creditors could have demanded a plan in which they received all of the reorganized corporation, but, having chosen not to, they may not surrender part of the value of the estate for distribution to the stockholder[], as a gift. Id. at 400. Whatever the secured creditors here did not take remains in the estate for the benefit of other claim-holders. As the Court built upon Howard to develop the absolute priority rule, it continued to reject arguments similar to the ones the appellees make before us. For example, in Louisville Trust Co. v. Louisville, New Albany & Chicago Railway Co., the Court noted that if the bondholder wishes to foreclose and exclude inferior lienholders or general unsecured creditors and stockholders, he may do so; but a foreclosure which attempts to preserve any interest or right of the mortgagor in the property after the sale must necessarily secure and preserve the prior rights of general creditors thereof. 174 U.S. 674, 683-84, 19 S.Ct. 827, 43 L.Ed. 1130 (1899). The Court rejected another similar argument in 1913 in Boyd, where it finally set down the fixed principle that we now call the absolute priority rule. 228 U.S. at 507, 33 S.Ct. 554. Those cases dealt with facts much like the facts of this one: an over-leveraged corporation whose undersecured senior lenders agree to give shares to prior shareholders while intermediate lenders receive less than the value of their claim. See Douglas G. Baird & Thomas H. Jackson, Bargaining After the Fall and the Contours of the Absolute Priority Rule, 55 U. Chi. L.Rev. 738, 739-44 (1988). And it was on the basis of those facts that the Supreme Court developed the absolute priority rule, with the aim of stopping the very sort of transaction that the appellees propose here. See In re Iridium, 478 F.3d at 463 n. 17. These old cases do not bind us directly, given that Congress has now codified the absolute priority rule. But if courts will not infer statutory abrogation of the common law without evidence that Congress intended such abrogation, see United States v. Texas, 507 U.S. 529, 534, 113 S.Ct. 1631, 123 L.Ed.2d 245 (1993), it would be even less appropriate to conclude that Congress abrogated the more-than-a-century-old core of the absolute priority rule by passing a statute whose language explicitly adopts it. We recognize the policy arguments against the absolute priority rule. Gifting may be a powerful tool in accelerating an efficient and non-adversarial ... chapter 11 proceeding, Leah M. Eisenberg, Gifting and Asset Reallocation in Chapter 11 Proceedings: A Synthesized Approach, 29 Am. Bankr.Inst. J. 50, 50 (2010), and no doubt the parties intended the gift to have such an effect here. See DBSD I, 419 B.R. at 214. As one witness testified below, where ... the equity sponsor is out of the money, ... a tip is common to [e]nsure a consensual bankruptcy rather than a contested one. Enforcing the absolute priority rule, by contrast, may encourage hold-out behavior by objecting creditors ... even though the transfer has no direct effect on the value to be received by the objecting creditors. Harvey R. Miller & Ronit J. Berkovich, The Implications of the Third Circuit's Armstrong Decision on Creative Corporate Restructuring: Will Strict Construction of the Absolute Priority Rule Make Chapter 11 Consensus Less Likely?, 55 Am. U.L.Rev. 1345, 1349 (2006). It deserves noting, however, that there are substantial policy arguments in favor of the rule. Shareholders retain substantial control over the Chapter 11 process, and with that control comes significant opportunity for self-enrichment at the expense of creditors. See, e.g., 11 U.S.C. § 1121(b) (giving debtor, which is usually controlled by old shareholders, exclusive 120-day period in which to propose plan). This case provides a nice example. Although no one alleges any untoward conduct here, it is noticeable how much larger a distribution the existing shareholder will receive under this plan (4.99% of all equity in the reorganized entity) than the general unsecured creditors put together (0.15% of all equity), despite the latter's technical seniority. Indeed, based on the debtor's estimate that the reorganized entity would be worth approximately $572 million, the existing shareholder will receive approximately $28.5 million worth of equity under the plan while the unsecured creditors must share only $850,000. And if the parties here were less scrupulous or the bankruptcy court less vigilant, a weakened absolute priority rule could allow for serious mischief between senior creditors and existing shareholders. Whatever the policy merits of the absolute priority rule, however, Congress was well aware of both its benefits and disadvantages when it codified the rule in the Bankruptcy Code. The policy objections to the rule are not new ones; the rule has attracted controversy from its early days. Four Justices dissented from the Supreme Court's 1913 holding in Boyd, see 228 U.S. at 511, 33 S.Ct. 554, and that decision was received by the reorganization bar and bankers with something akin to horror, James N. Rosenberg, Reorganization The Next Step, 22 Colum. L.Rev. 14, 14 (1922). The Commission charged with reviewing the bankruptcy laws in the lead-up to the enactment of the Bankruptcy Code suggested loosening the absolute priority rule to allow greater participation by equity owners. See Bruce A. Markell, Owners, Auctions, and Absolute Priority in Bankruptcy Reorganizations, 44 Stan. L.Rev. 70, 87-89 & n. 117 (1991). Yet, although Congress did soften the absolute priority rule in some ways, [7] it did not create any exception for gifts like the one at issue here. See also H.R. Rep. 95-595, 1978 U.S.C.C.A.N. 5963, 6372 (1977) (noting that absolute priority rule was designed to prevent a senior class from giving up consideration to a junior class unless every intermediate class consents, is paid in full, or is unimpaired). [8] We therefore hold that the bankruptcy court erred in confirming the plan of reorganization.