Document: 526 U.S. 434119 S.Ct. 1411143 L.Ed.2d 607 126 F.3d 955, reversed and remanded. SUPREME COURT OF THE UNITED STATES No. 97 1418 BANK AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, PETITIONER v. 203 NORTH LASALLE STREET PARTNERSHIP ON WRIT CERTIORARI TO APPEALS FOR SEVENTH CIRCUIT [May 3, 1999] Justice Souter delivered the opinion of Court. 1 The issue in this Chapter 11 reorganization case is whether a debtor's prebankruptcy equity holders may, over objection senior class impaired creditors, contribute new capital receive ownership interests reorganized entity, when that opportunity given exclusively to old under plan adopted without consideration alternatives. We hold are disqualified from participating such "new value" transaction by terms U.S.C. § 1129(b)(2)(B)(ii), which circumstances bars junior interest holder's receipt any property on account his prior interest. 2 * Petitioner, Bank America National Trust Savings Association (Bank),1 major creditor respondent, North LaSalle Street Partnership (Debtor or Partnership), an Illinois real estate limited partnership.2 lent Debtor some $93 million, secured nonrecourse first mortgage 3 Debtor's principal asset, 15 floors office building downtown Chicago. In January 1995, defaulted, began foreclosure state court. March, responded with voluntary petition for relief Bankruptcy Code, 1101 et seq., automatically stayed proceedings, see §362(a). re N. Partnership, 958 (CA7 1997); America, 195 B. R. 692, 696 (ND Ill. 1996). objective was ensure its partners retained title so as avoid roughly $20 million personal tax liabilities, would fall due if foreclosed. F.3d, at 958; R., 698. proceeded propose during 120-day period it alone had right do so, 1121(b); also §1121(c) (exclusivity extends 180 days debtor files within initial 120 days).4 Court rejected Bank's motion terminate exclusivity make way own liquidate property, instead extended cause shown, §1121(d).5 4 value mortgaged less than balance Bank, elected divide undersecured claim into unsecured deficiency claims §506(a) §1111(b).6 958. Under plan, separately classified claim, trade debt owed other creditors. See §1122(a).7 found available assets were prepetition rents cash $3.1 rental worth $54.5 million. valued latter figure, leaving $38.5 5 So far we need be concerned here, these further features: 6 (1) paid full between 7 10 years after original 1995 repayment date.8 (2) discharged estimated 16% present value.9 8 (3) remaining $90,000, held outside full, interest, effective date plan.10 9 (4) Certain former $6.125 course five (the contribution being $4.1 value), exchange Partnership's entire debtor. last condition exclusive eligibility provision: only ones who could capital.11 objected and, sole member thereby blocked confirmation consensual basis. §1129(a)(8).12 Debtor, however, took alternate route forthrightly known judicial "cramdown" process imposing dissenting class. §1129(b). generally Klee, All You Ever Wanted Know About Cram Down New 53 Am. Bankr. L. J. 133 (1979). 12 There two conditions cramdown. First, all requirements §1129(a) must met (save plan's acceptance each interests, §1129(a)(8)). Critical among them accepted least one §1129(a)(10), satisfy "best-interest-of-creditors" test, §1129(a)(7).13 Here, creditors voted plan,14 959, there no best Second, may overridden "the does not discriminate unfairly, fair equitable, respect under, has accepted, plan." §1129(b)(1). As "fair equitable" allowed §1129(b)(2)(B)(i), or, alternative, holder [impaired unsecured] will retain property," §1129(b)(2)(B)(ii). That core what "absolute priority rule." 13 absolute rule basis position confirmed read rule, open simply because certain even though full. approved nonetheless, accordingly denied pending convert liquidation, dismiss case. District affirmed, 692 1996), did Appeals. 14 majority Seventh Circuit's divided panel ambiguity language statutory looked beyond text interpret phrase "on of" permitting recognition corollary" rule. 964 965. According panel, corollary, stated Case Los Angeles Lumber Products Co., 308 106, 118 (1939), provides bar receiving retaining reorganization, they money money's worth, reasonably equivalent property's value, necessary successful restructured enterprise. "when retains meeting he 'on ' equitable Rather, participate entity new, substantial, infusion capital." 964. dissent's contrary view, nothing ambiguous about text: "plain include exception." Id., 970 (opinion Kanne, J.). Since "[t]he Plan gives [the Debtor's] their indebted status holder[s]," id., 973, dissent have plan. 16 granted certiorari, 523 1106 (1998), resolve Circuit split issue. joined Ninth relying corollary support plans. Bonner Mall 899, 910 916 (CA9 1993), cert. granted, 510 1039, vacatur appeal dism'd moot, 513 18 (1994). Second Fourth Circuits, contrast, explicitly rejecting disapproved plans similar one. Coltex Loop Central Three Partners, P., 138 39, 44 45 (CA2 1998); Bryson Properties, XVIII, 961 F.2d 496, 504 (CA4), denied, 506 866 (1992).15 decide statute includes exception, but reading respondent's proposed fails statute, reverse. II 17 rule" (or "exception") creatures law antedating current understand both those related inexact Code history helpful. Act preceding contained provision subsection (b)(2)(B)(ii), subject having been addressed interpretive rules. specific gloss requirement §77B (and successor, X) Act, equitable." 205(e) (1934 ed., Supp. I) (repealed 1938) (§77B); 621(2) IV) 1979) (Chapter X). reason limitation danger inherent debtor, then now, turn out too good deal owners. H. Doc. 93 137, pt. I, p. 255 (1973) (discussing concern ability few insiders, representatives management use gain unfair advantage"); ibid. ("[I]t believed management's dominance, able bargain effectively clear standard fairness control"); Ayer, Rethinking Absolute Priority After Ahlers, 87 Mich. Rev. 963, 969 973 (1989). Hence pre-Code response required before stockholders [equity interests] purpose whatever." Northern Pacific Co. Boyd, 228 482, 508 (1913). Louisville Louisville, A. & C. 174 674, 684 (1899) (reciting familiar stockholder's subordinate rights creditors; creditors" concluding "any arrangement parties attempted expense either comes denunciation"). second first. Its classic formulation occurred spoke through Douglas dictum: 19 "It is, course, insolvent . Where th[e] necessity [for capital] exists fresh return participation contribution, can made 20 "[W]e believe accord 'the against corporate assets' where insolvent, based view stockholder." U.S., 121 122. 21 Although counsel here described observation " 'black-letter' principle," Brief Respondent 38, never rose above technical level dictum Court, Norwest Worthington 485 197 (1988), holding 'labor, experience, expertise' 'money's worth' required. 205. Marine Harbor Inc. Manufacturers 317 78, 85 (1942); Consolidated Rock Du Bois, 312 510, 529, n. 27 (1941). Nor, enactment court rely approve gave reorganization. supra, 1016; Markell, Owners, Auctions, Reorganizations, Stan. 69, 92 (1991). controversy how weighty become, reflected alternative labels notion: writers courts (including one, 203, 3) spoken exception see, e.g., Potter Material Service, Inc., 781 99, 101 1986); Miller, Bankruptcy's Value Exception: No Longer Necessity, 77 U. 975 (1997); Georgakopoulos, Value, Fresh Start, Bus. Fin. 125 (1997), while others characterized simple 906; 999. 22 Enactment place might resolved bearing name unmistakably couched terms, Congress chose avail itself opportunity. 1973, considered proposals Commission included recommendation more supple allowing nonmonetary contributions. 258 259; II, 242, 252. action ensuing bills containing enacted expanded concept,16 reintroduced next congressional session. 31, 94th Cong., 1st Sess., §§7 303(4),17 310(d)(2)(B) (1975);18 32, 301(4), 308(d)(2)(B) (1975); S. 235, 236, 303(4), (1975). extensive hearings, substantially revised House bill emerged, 6, 95th §§1123, 1129(b) (1977).19 lengthy mark-up session, produced 8200, Sess. (1977), eventually become law, Rep. 95 595, (1977). It explicit language, expansive otherwise, codify nearly form. §1129(b)(2)(B)(iv) ("[T]he be, property").20 23 For plumbing meaning (b)(2)(B)(ii) search possible lesson drafting equivocal. hornbook 'Congress intend sub silentio enact earlier discarded,' INS Cardoza&nbhyph;Fonseca, 480 421, 442 443 (1987), silentium, passed instance finally enacted, predecessors died vine. None codification rule,21 question concept, dictum.22 24 equivocal note amplified another feature legislative advance toward law. Any argument fact authoritative version Compare §1129(b)(2)(B)(ii) property") entitled [a property] whatever"), Case, 116 (" '[C]reditors corporation' (quoting Kansas City Terminal Union Y., 271 445, 455 (1926))). 414 (characterizing "partial rule"); ("The elements [fair equitable] test new[,] departing tests Act"). 25 upshot disparage possibility apparent text, now books carry corollary. literal reference claim," arguably implication modifying prohibition claimants unconsenting goes fully paid. III 26 basic interpretations suggested modifier. harks back accounting practice means something like "in for," satisfaction of," 13, 15, 16. On violate unless received significant contribution; substantial part deal, stand way, whatever issues otherwise implicate This beset troubles, textual. Subsection forbids retention well. §§1129(a)(7)(A)(ii), (a)(7)(B), (b)(2)(B)(i), (b)(2)(C)(i), (b)(2)(C)(ii). A common business Yet exceedingly odd speak "retain[ing]" same eccentricity underscored elsewhere drafters very §1123(a)(5)(J) (a shall provide adequate implementation, including "issuance securities cash, existing securities, interests"). unlikely legislation long minutely contemplated 1978 used distinctly different forms words purpose. Russello United States, 464 16, (1983). 28 difficulty practical: unlikelihood meant impose manipulable prohibit merely unaccompanied funds permit whenever changed hands. "Substantial" "significant" "considerable" characterizations monetary measure Lord Chancellor's foot, variable much absolute. Of true (as already noted) that, displace adding amount follow adoption; contested still overriding equity. But general criterion apply event, why bothered add separate sharper edge. 29 for" merits rejection, recognize understanding mean "because of." certainly usage places §1111(b)(1)(A) (treating "had recourse claim"); §522(d)(10)(E) (permitting debtors exempt payments benefit contracts illness, disability, death, age, length service"); §547(b)(2) (authorizing trustee transfer "for antecedent debtor"); §547(c)(4)(B) (barring avoiding unavoidable creditor"). So, commonsense concept single Cohen de la Cruz, 213, 219 220 better recognizes causal relationship activates 30 degree causation final bone contention. Government, amicus curiae, take starchy activate providing later States Amicus Curiae end up causation; equity, someone street, gets res ipsa loquitur. An cannot 11, 18. Tr. Oral Arg. 28.23 31 are, reasons counting reading. If, likely, treating point (see 202),24 prohibited anything omit entirely (b)(2)(B)(ii). assumption, blanket leave redundancy, obligation try give language. See, Moskal 498 103, 109 110 (1990); Menasche, 348 528, 538 539 (1955).25 One ask desired exclude categorically potential owners following doubt Appeals's assumption 966, 12) often source reorganizations, Blum Kaplan, Doctrine Corporate 41 Chi. 651, 672 (1974); Mann, Strategy Force Liquidation Secured Debt, 96 159, 182 183, 192 194, 208 209 well go enterprise party most likely work equity-for-value 32 intended reconcile recognized policies underlying preserving going concerns maximizing Toibb Radloff, 501 157, 163 Causation equity's holdings subsequent enough disqualify presumably occur things come price failed greatest addition bankruptcy estate, always low obtained preserved else paid.26 truly transaction, hand, pose threat posed provided realizable just Ahlers application Case's Cf. 205; 121. IV 33 Which positions ultimately prevail decided require rejection doomed, say necessarily exhausting flaws, vesting extending anyone compete competing §1121(b) "property" respondent partnership taken advantage proposing partners. Upon court's approval enjoyed exercised option buy contracted purchase seller agreed else. quite escrow partners' investment eliminated formal set express dealing itself, since created obtain simultaneous. entity. At moment economic sense distinguishable offeror holder. should, all, treated item right. 43 (exclusive post-petition property); XVII, F.2d, 504; Kham Nate's Shoes 2, First 908 1351, 1360 1990); D. Baird, Elements 261 (rev. ed. 1993) get market 'property' word ordinarily used. Options acquire firm, positive price"). While argued owing liability, avails nothing, several reasons. arguments settled cognizable sufficiently valuable Code. 207 208. Even aside pay obviously inference valueless, let should property. And, finally, opportunity's implies lacks others. might, indeed, precisely keep implementing liquidation. 34 Given arises it, mention cost whatever. closest thing answer favorable expectation taking estate. 40 41. begs holders. If obtainable, protection exclusiveness (unless trump equal offer else); best, giving bargain. reason, whole part, favor. And opportunity, resulting benefit, market's scrutiny bids proposals, renders therefore unpaid class's objection. 35 detail broader exercise, wider perspective favoritism inferred, something, whereas anything. day, dime seen position. assume satisfying judge top dollar, treat consisting subsumed total proposed. interpretation assumed would, fatal flaw acquired paying value. thus demonstrate payment satisfactorily absence sort.27 granting right, making plans, determination dollar court, determine exposure market. 262; Bowers, Rehabilitation, Redistribution Dissipation: Evidence Choosing Among Hypotheses, 72 Wash. Q. 963 34, (1994); Rev., 73 ("Reorganization illustrates presence bidders not, tends increase dividends"). significance, was, Code's innovations narrow occasions valuation judgments, shown preference supramajoritarian voting scheme §1126(c), accept reject honor rule").28 coherence, disfavor decisions untested competitive choice ought extend valuations administering form adequacy contribution. 36 Whether satisfied bid sought here. say, assuming opportunities free competition 37 judgment Appeals reversed, remanded proceedings consistent opinion. 38 ordered. Notes 39 1. appellant below. result merger, Association. 2. 101(16), (17), actions understood behalf 3. loan requires look collateral payment. infra. 42 4. filed April amended May 12, 1995. objected, ground feasible. §1129(a)(11). submitted September LaSalle, 959 1997). 5. neither appealed denial nor raised appeal. 6. Having waive 11. Section 1111(b), recourse. 7. Indeed, apparently classification claims. Woodbrook Associates, 312, 319 Nonetheless, vote resulted contention classifications gerrymandered requisite class, Limited 190 567, 592 593 (Bkrtcy. Ct. ND 1995); 705 agreed, 968. review issue, us. 46 8. Payment consisted prompt $1,149,500 secured, 7-year note, extendable option. 4; 47 9. expected yield upon Court's projection sale refinancing 10th anniversary produce $19-million distribution Bank. 48 10. originally $160,000 debt. filing bankruptcy, purchased confirmation, insiders held. 958, 2; 49 noncontributing More 60% change hands 4, consist solely partners, critical preservation shelter. 32. 50 12. accepts two-thirds §1126(c). 51 13. 1129(a)(7) "receive liquidated chapter date." "best interests" applies individual claims, votes 52 14. Claims unimpaired legal, contractual §1124. 15. four cases arose single-asset context, typical Collier ¶1129.04[4][c][ii][B], 1129 113 (15th rev. 1998). Strub, Competition, Bargaining, Exclusivity Rule: Applying Single-Asset Paradigm Mall, 111 Banking 228, 231 (1994) ("Most discussing done connection attempt reorganize 11"). 54 10792, 93d (1973); 16643, 2d 2565, 4046, (1974). 55 17. 303(4) read: "[W]hen security important operation successor approximates any, additional contribution." 56 "Subject provisions section 303 findings thereby, reasonable probability issued distributed compensate respective classes property." 57 19. read, relevant part: "[T]he request proponent confirm except comprised classes." 58 20. requiring equitable," none codifying nn. 19, supra. 59 21. 20, 60 22. 18, 61 23. Our Government's informed curiae case: structure grants claims." Bancorp Mortgage O. T. 1993, 714, Government conceded us, press stringent "whatever [the] definition of,' 100 percent certainty equit[y] obtains they're that." (internal quotation marks added). 62 24. possible, contrary, argue immediate indicate per se accounts eliminate interpreting stopping short prohibiting transaction. 63 25. our modifier, likewise various statements Report bill's floor leaders, which, imply emphatic, unconditional 224 (1977) dissenter all"); 413 ("[I]f [an is] plan"); 124 Cong. Rec. 32408 (1978) (statement Edwards) (cramdown confirmable "as receives 34007 Sen. DeConcini) (same). 64 26. figure high pay, theory "necessity" justify such. interpretation, disproof burden; show much. 1998) ("[O]ld willing source" citation omitted)); J., 243 (old "needs owner-managers available"). emphasize suggest exhaustive list 65 27. emphasizes care Judge examining evidence arguing occasion us consider top-dollar requirement. Post, n.7. agree judge's conscientious handling matter, sets thinking calls testing followed 66 28. explained: "The petitioners off respondents' confirmed. manner specified 1126(c). (i.e., petitioners) prerogative applying effectuate decision." 207. rules represent stark departure Act. "Congress judges viability self-interest courts, trustees, SEC Consistent approach, relies engage negotiations resolution interests." Brunstad, Sigal, Schorling, Review Proposals Pertaining Business Bankruptcies: Part One, Law. 1381, 1406, 136 (1998). Thomas, concurring 67 68 69 70 whom Scalia joins, judgment. 71 I majority's conclusion However, unnecessary speculations share approach concur precedents analysis begin external sources, itself. Connecticut Nat. Germain, 503 249, 253 254 (1992); Wolas, 502 151, 154 case, 1129(b), expressly authorize capital.1 Instead, cast objections With if, minimum, "provides §1129(b) (2)(B)(ii). Neither claim. ante, Therefore, condition. condition, plan: 22, 74 central presented denotes type comports understandings phrase. Random Dictionary English Language (2d 1987) ("by of' "); Webster's Third International (1976) ("for sake "by "). tracks §§365(f)(3), 510(b), 1111(b)(1)(A); §1129. Regardless direct nexus pre- undoubtedly Ante, prohibits "any" conclusion, recognizes, sufficient Thus, comments desirability "market test," 23, dicta binding lower federal courts. 75 underestimates method extensively surveys history, explain relevance sources apart conclusory assertion "inexact" "helpful." sort repeats methodological error committed Dewsnup Timm, 410 (1992). 76 Dewsnup, held, practice, §506(d) prevented stripping down creditor's lien judicially determined collateral. 419 420. justified reliance finding ambiguous. 416. ambiguous, litigants amici offered statute. Ibid. remarkable untenable methodology litigants' differing ambiguity, hard imagine escape Dewsnup's broad sweep. mere disagreement prove ambiguity; usually wrong. enables undermine creating "ambiguous" cramming idea garnered history. risks seeks bring area single, coherent umbrella, especially weighty. previously recognized, "was modernize laws, changes substantive procedural laws bankruptcy." Ron Pair Enterprises, 489 240 (1989) (citation omitted). overall reflects departures practices. Most system unlike early depended unanimous hijacked holdout. 262 (1993). makes little graft onto concepts developed era practice. 78 rare instances Midlantic Jersey Dept. Environmental Protection, 474 494, (1986) surely sparse behind inform ever embraced exception. noted majority, 9, leading decision suggesting possibility, 106 dictum. enactment, relied questionable pedigree employed Code.2 79 excessive notice Justices expressed sympathy Courts predict construction case." 435 (Scalia, Souter, dissenting). Regrettably, borne dissenters' fears. confusion enshrouded tellingly, Courts, daily basis.3 wake Fifth withdrew prompting author observe clouded "[h]ow arising Code." Greystone Joint Venture, 995 1274, 1285 (CA5 1991) (Jones, Unfortunately, today thickens fog. 80 respect, §1129 differs 1225(b)(1)(B) (allowing non-disposable income); §1325(b)(1)(B) 81 Nor think bears proper irrelevant predating it. Estate Romani, 517, 535 537 (1998) judgment). relevance, insert acted 82 Southeast Corp., 156 1114, 1123, (CA11 1274 (per curiam) (vacating regarding light Dewsnup); dissenting); Kirchner, 216 417, 418 WD Wis. Bowen, 840, 852 853 SD Ga. 1994); Dever, 164 132, CD Cal. Mr. Gatti's, 162 1004, 1010 Tex. Taffi, 144 105, 112 1992), rev'd, F. ¶93 5408, 6607 (CD aff'd rev'd 306 1995), modified, 1190 1996) (en banc), 521 1103 V. I., 143 738, 744 745 912 913 Stevens, 83 84 86 dissenting. Prior Reform 1978, unequivocally money, participation.1 occasions,2 certiorari repealed component definitively 88 wisely rejects "starchy" venture cramdown 16.3 Nevertheless, find unsupported 1129(b)(2)(B)(ii) record therefore, affirm 89 forth order qualify confirmation.4 classes, conform dictates §§1129(a) identical parties. interest." 90 When Douglas' perfectly clear. Whenever claimant price, invests greater venture, equally 91 proponents seek including, notably, whose impaired. Moreover, third party, perhaps motivated unique considerations, higher price. §1129(c). every serious questions concerning resolved.5 answering legal correctly answered. example, widely advertised auction numerous participated, respondents wide margin proposal, 100% equity? Petitioner reply "yes" imposes ban consent extreme superfluous, plausible categorical exclusion, capital. thought "such border absurd."6 appears my hypothetical question. driven doubts procedures determinations, implicitly construed bidding this.7 94 Perhaps wise all. defines render eligible completed. §1121 (Who file plan); §1122 (Classification interests); §1125 (Postpetition disclosure solicitation); §1126 (Acceptance §1127 (Modification plan). Because, discuss below, petitioner challenge disposition opinion, refusing stage proceedings: adopted. vested complete immediately defect These dictated objection, characterizes "exclusive opportunity," lesser percentage been. Surely significance else." Judge's (other compliance §1129(b)(2)(B)(ii)). matter) available. doom requested parties, §1129, turns content speculation preceded confirmation. 98 bankruptcy. §1121(b). contends status.8 indeed participation, unsurprising unidentified outsiders unspecified portion partnership. seems practically economically puzzling unknown incompatible) partners', comply §1129(b)(2)(B)(ii).9 99 postreorganization until They assurance refuse truncate allow interested turned out, bank us.10 implement plan.11 then, opportunity" came existence. What refuses recognize, function features period, refusal inescapable repeated references "opportunity," 21, potentially misleading ignores once can, refer duties "opportunities," comparable enter contract so. bundle 102 accurately determined, judged offers newcomers. ownership. 103 interpreted §1129(b)(2)(B)(ii), affirmed. 104 Accordingly, respectfully dissent. 105 explained (1939): seen, indicated Ry. Boyd[, 482 (1913),] Co.[, 445 (1926)]. Especially stress necessity, times, seeking 'essential success undertaking' stockholders. made. "In considerations 122 (footnote 197, (1988); 107 earlier, 1, proposition Angeles, preeminent scholar, views dangers management-controlled reorganizations. Both Protective Committee Study Securities Exchange X "restore integrity process" "too [was] masterminded scenes managers allied corporation's bankers." Jennings, Douglas: His Influence Regulation, Yale 920, 935 937 (1964). To end, placed special emphasis creditors' Hopkirk, William Work Policing Proceedings, Vand. 663, 685 (1965). implausible Congress, enacting strict limiting 108 "Confirmation goal Congress' minimum discharge debts continue operations." ¶ 1129.01 15th Warren, Theory Priority, 1991 Ann. Survey ("In problem vexing valuation"). Kanne wrote dissent: "Perhaps reasoning fear 'but for' prevent intended. absurd, simpler, preclude earn shares auction, contributions." 972 seem logical adherents stipulated contributions exceeded attainable effect challenged. unwarranted space $55.8 bank's expert testimony differed 2.8%. 573 576 1995). although argues policy implications debate" revolve around determinations collateral, 5, squarely review. acknowledges, saying entertain discretionary province §1121(d). 114 Apparently, called liquidation flesh facts terminated context contravene purposes River Village 181 795, 805 (ED Pa. 115 1141(a) states: "Except subsections (d)(2) (d)(3) section, bind issuing acquiring creditor, holder, partner 1141.02. ("Section provision, Amendment, holds ."); §1142(a). provided: Reorganized contributed "New Capital") follows: $3.0 ("Initial banking day Effective Date, $625,000 anniversaries Date." App. 39. "Effective Date" defined Confirmation Order entered docket sheet maintained Case."

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