Document: 485 U.S. 197 108 S.Ct. 963 99 L.Ed.2d 169 NORWEST BANK WORTHINGTON, et al., Petitionersv.James R. AHLERS, ux. No. 86-958. Argued Jan. 12, 1988. Decided March 7, Syllabus Respondents, who operate a family farm, obtained secured loans from petitioners. Following 1984 default on the loan payments, one petitioner filed state-court replevin action seeking possession of farm equipment pledged as security, but respondents an automatic stay when they petition for reorganization under Chapter 11 Bankruptcy Code (Code). On petitioners' motions relief stay, District Court found respondents' plan to be unfeasible and affirmed Court's decision grant petitioners relief. The Appeals reversed, finding that could file feasible (as suggested by court), rejecting contention Code's "absolute priority rule," U.S.C. § 1129(b)(2)(B)(ii) (1982 ed. Supp. IV)—which provides dissenting class unsecured creditors must provided in full before any junior can receive or retain property plan—barred confirmation which allowed their equity interest was creditors' claims. court held Case v. Los Angeles Lumber Products Co., 308 106, 60 1, 84 L.Ed. 110, absolute rule did not bar retaining if contributed "money money's worth" reorganized enterprise, yearly contributions "labor, experience, expertise" would constitute such contribution, therefore permitting over objections. Held: applies, promise future labor warrants no exception its operation. Pp. 202-211. (a) dicta relied upon Appeals, is applicable here. Viewed time plan's approval, services intangible, inalienable, and, all likelihood, unenforceable. Unlike worth," cannot exchanged market something value today. No broader than exists. statutory language 1129(b)'s legislative history expansion beyond recognized this cases at Congress enacted 1978 Code. 202-206. (b) provisions do support contentions equitable nature bankruptcy proceedings prevents voting creditors, requires "fair equitable" best interests debtors; wholly opposed petitioners, have undersecured claims) fare better proposed liquidated. Whatever powers remain courts exercised within confines. 206-207. (c) There merit argument does apply ground that, because has "going concern" (apart own it), worthless senior "property" rule. Even where debts far exceed current assets, debtor retains his enterprise "property." suggests Congress' meaning broad, including both tangible intangible property. considered "property," only retained pursuant accepted formulated compliance with 207-209. (d) Relief problems facing families come misconstruction laws, rather Congress. Moreover, Family Farmers Act 1986 creates new 12 proceeding whereby farmers farms while making repayments plan. To uphold Appeals' create method more advantageous 12; contrary intent. 209-211. 794 F.2d 388 (CA8 1986), reversed remanded. WHITE, J., delivered opinion Court, other Members joined, except KENNEDY, took part consideration case. Gordon B. Conn, Jr., Minneapolis, Minn., William L. Needler, Chicago, Ill., respondents. Justice WHITE Court. 1 In case, permitted objections even though violated rule" Because we find conclusion odds our cases, reverse. 2 * Respondents failing Nobles County, Minnesota. Between 1965 securing farmland, machinery, crops, livestock, proceeds. November 1984, defaulted payments Norwest Bank Worthington; time, aggregate balance owed exceeded $1 million. 3 default, Minnesota state had security. However, two weeks later proceedings, See 362(a) IV). 4 Petitioners stay. 362(d) ed., After decisions Courts, these were ultimately prohibited repossessing equipment, pending determination probability success App. Pet. Cert. A-76—A-77. remand, "utter[ly] unfeasibl[e]." Id., A-86. It initial 5 appeal, reversed. 388, 399 1986). Consequently, remanded case instructions entertain confirm comported outline lengthy appendix Eighth Circuit's opinion. 408-414. 6 reaching conclusion, rejected Code, IV), legitimate sufficient plan.1 contended But relying 110 (1939), enterprise. further concluded "yearly labor, contribution permit F.2d, 402-403. Judge John Gibson, dissent, criticized majority's application reading "unprecedented, illogical, unfair." 406. He barred retention 7 Circuit—sharply divided—denied rehearing en banc, id., 414-415, sought review We granted certiorari consider rule, 483 1004, 107 3227, 97 733 (1987), now II 8 As stated, "provides [under reorganization] plan." 401. genesis judicial construction undefined requirement early statute plans equitable." Northern Pacific Co. Boyd, 228 482, 504-505, 33 554, 560, 57 931 (1913); Louisville Trust Louisville, N.A. & C.R. 174 674, 684, 19 827, 830, 43 1130 (1899). since gained express force, incorporated into adopted 1978. Under law, confirmed (absent certain conditions relevant here) it fails comply 9 little doubt rule.2 suggest otherwise ruling respondents, "exception" "modification" cases. 10 following supra, U.S., 121-122, S.Ct., 10: "It is, course, clear there are circumstances stockholders may participate insolvent debtor. . "[W]e believe accord 'the creditor right against corporate assets' insolvent, stockholder's participation based money worth, reasonably equivalent view stockholder." 13 concluding running farm—because "value" "measurable"—are Lumber. 402. disagree.3 14 itself analogous proposition, existing shareholders pledge "financial standing influence community" "continuity management" "[in]adequate consideration" possibly deemed "money's worth." 122, 10. doubt, efforts promised holders—like those respondents—had been some benefit ultimately, said Lumber, "[t]hey reflect merely vague hopes possibilities." 122-123, 11. same true management skills. 15 approval plan, "has place asset column sheet [entity]." fact, below, ever contribute management, expertise qualify rule.4 short, way distinguish between promises proffer here Lumber; neither adequate escape 16 fit dicta, satisfy Brief 23-24. meant codified 11—a proposition debated, see n. 3, supra —it intention expand further. When considering adoption received proposal Commission modify holders "continued essential business" H.R.Doc. 93-137, pt. pp. 258-259 (1973). This proposal—quite similar holding case—prompted adverse reactions numerous sources.5 liberalization codification "This [section] codifies down." H.R.Rep. 95-595, p. 413 (1977), U.S.Code Cong. Admin.News 1978, 5787, 6369. think 1129(b) clearly 17 sum, previous conclude applies here, III 18 advance additional arguments obviate mandated A. first variety "equitable arguments" which, say, prevent result reach contend proceedings—namely, status "equity"—prevents inequitably debtors confirmed. 14-16, Similarly, significant that—in view—respondents' partially 20 short answer whatever confines vote 506(a), complies up creditors—and courts—to accept reject provide them protection honor 1126 21 well believed off make manner specified 1126(c). Here, principal entitled (i.e., petitioners) objected reorganization. prerogative applying effectuate decision. B 22 argue wish creditors. argue, "the deprived nothing so-called 'interest' continues debtor." 19. contend, worthless, 23 join consensus authority "no value" theory.6 Whether "present prospective, dividends purposes control" "which [are] [can] purpose whatever." 508, 561. Indeed, sole proprietorship, minimal, still control enterprise; obviously, also issue potential profits now-insolvent business. SEC Canandaigua Enterprises Corp., 339 14, (CA2 1964) (Friendly, J.). And define what means term used 1129(b), quite broad. " '[P]roperty' includes property." 413, 24 theory particularly inapposite appears presented Circuit, implicitly concluded—to position here—that desire value. cursory reveals might "valuable" several reasons. For example, share earned sale during period, 403, 18—an hardly "worthless." great common sense "obviously, going concern parties litigating last three years." Tr. Oral Arg. 15-16. 25 1129(b)(2)(B)(ii), Since judgment stand. IV 26 position, take lightly concerns militated Circuit towards result. commented case: 27 "We understand motivation behind majority [In re] Ahlers [794 1986) ]. Farm bankruptcies crisis we, too, sympathize plight American farmer. Nevertheless, solution long line law." re Stegall, 64 B.R. 296, 300 (Bkrtcy.Ct.CD Ill.1986). 28 hold special Nation's folklore. amici paint grim picture today, present eloquent appeal behalf.7 Yet woes rather, Congress.8 29 error approach revealed examination measure recently cope very concerns, 1986, Pub.L. 99-554, 255, 100 Stat. 3105-3114. proceeding, 1201 seq. IV).9 30 makes adopting difficulties encountered reorganize 11.10 yet, concede, 12. 6-9; 23-25. Thus, given 11, provision less favorable intended beneficiaries law. thought doing just opposite.11 "[W]here, adopts law [it] normally presumed knowledge interpretation [old] Lorillard Pons, 434 575, 581, 98 866, 870, 55 40 (1978). understanding rule—and respondents'—is correct one. created, option reorganizations accessible most proceedings. V 31 below consistent 32 so ordered. KENNEDY part, IV) provides: "(1) [T]he shall fair equitable. "(2) condition requirements: "(B) With respect claims— "(i) each holder claim account value, effective date equal amount claim; "(ii) claims will contended, agreed, treated substantially undersecured. 1986); 506(a). argued, 1129(b)(2)(B)(i), rule—in order Ibid. contest (1) confirmable 21-25, (2) (or should not) various reasons, 14-21. reasons discuss infra, ----, Part III, unpersuasive. United States, amicus curiae, urges us reverse eliminated States Amicus Curiae 17-23. Relying history, argues "dropped infusion-of-new-capital rule." 22. need question resolve instant dispute. survived enactment encompass today taken comment continuing vitality exception—a divided lower passage Compare, e.g., Sawmill Hydraulics, Inc., 72 454, 456, Ill.1987), with, Pine Lake Village Apartment 819, 833 (Bkrtcy.Ct.SDNY 1982). Rather, simply "infusion-of-'money-or-money's-worth' inadequate gain exception. "[P]revious attempts non-capital context unanimously rejected." Koger Acconcia, Ahlers: Capitalizing Sweat, 42 J.Mo.Bar 455, 458 (1986). 407 (Gibson, dissenting); Baugh, 73 414, 418 (Bkrtcy.Ct.ED Ark.1987); Pecht, 137, 139-141 Va.1986). rely extensively Realty Improvement 310 434, 1044, 1293 (1940). 31-33, 35-37. portion concerned chapter old statutes apply. 453-454, 1052. See, Hearings S. 235 236 Subcommittee Improvements Judicial Machinery Senate Committee Judiciary, 94th Cong., 1st Sess., 2, 1044 (1975) (statement Prof. Vernon Countryman); 710 Phillip Loomis, Comm'r Securities Exchange Comm'n); Brudney, Commission's Proposed "Modifications" Absolute Priority Rule, 48 Am.Bankr.L.J. 305, 336-339 (1974). note Star City Rebuilders, 62 983, 988-989 (WD doing, acknowledged bulk contrary. 989; Modern Glass Specialists, 139, 140-141 Wisc.1984); Huckabee Auto 132, 141 (Bkrtcy.Ct.MD Ga.1981); Landau Boat 436, 438-439 (Bkrtcy.Ct.WD Mo.1981). theory. 16. assertion 8-11; State Arkansas al. Amici 1-2. "justified" modification along opinion, least limit farms, small businesses generally. able evade reasoning; surely squared discussed supra. apparently meet requirements defining eligible "family farm" 23; 101(17) addition, disqualified filing previously Courts issue. Big Dry Angus Ranch, 69 695, 699-701 (Mont.1987), B.A.V., 68 411, 412-413 (Colo.1986). 132 Cong.Rec. 28592 (1986) Sen. Thurmond); 28593 Grassley). seemed aware specific obstacle posed reorganizations. Anderson, An Analysis Pending Bills Provide Debtor reprinted 28593, 28599 "Under chapter, easier farmer reorganization." Joint Explanatory Statement Conference, H8998, H8999 (Oct.

Category: 7