In Re Philadelphia Newspapers, LLC

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 09-4266

IN RE: PHILADELPHIA NEWSPAPERS, LLC, ET AL.

-----------------------------

CITIZENS BANK OF PENNSYLVANIA;

STEERING GROUP OF PREPETITION

SECURED LENDERS,

Appellants

No. 09-4349

IN RE: PHILADELPHIA NEWSPAPERS, INC.,

-----------------------------

OFFICIAL COMMITTEE OF UNSECURED CREDITORS,

CITIZENS BANK OF PENNSYLVANIA;

STEERING GROUP OF PREPETITION

SECURED LENDERS,

Official Committee of Unsecured Creditors,

Appellant

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. No. 09-mc-00178)

District Judge: Honorable Eduardo C. Robreno

Argued December 15, 2009

Before: AMBRO, SMITH and FISHER, Circuit Judges.

(Filed: March 22, 2010)

David F. Abernethy

Andrew J. Flame

Andrew C. Kassner

Alfred W. Putnam, Jr. (Argued)

Drinker, Biddle & Reath

18th & Cherry Streets

One Logan Square

Philadelphia, PA 19103

Counsel for Appellant / Cross Appellee

Citizens Bank of Pennsylvania

Alex Freeman

Fred S. Hodara

Abid Qureshi (Argued)

Akin, Gump, Strauss, Hauer & Feld

One Bryant Park

2

New York, NY 10036

L. Rachel Helyar

Akin, Gump, Strauss, Hauer & Feld

2029 Century Park East, Suite 2400

Los Angeles, CA 90067

Counsel for Appellant / Cross Appellee

Steering Group of Prepetition Secured Lenders

Kerry A. Brennan

Rick B. Antonoff

Pillsbury, Winthrop, Shaw & Pittman

1540 Broadway, 9th Floor

New York, NY 10036

Elliot Ganz

Loan Syndications and Trading Association

366 Madison Avenue

New York, NY 10017

Counsel for Amicus Loan Syndications and

Trading Association in support of Appellants

Jonathan N. Helfat

James M. Cretella

Otterbourg, Steindler, Houston & Rosen

230 Park Avenue

New York, NY 10169

Richard M. Kohn

Ronald Barliant

Goldberg Kohn, Ltd.

55 East Monroe Street, Suite 3300

3

Chicago, IL 60603

Counsel for Amicus Commercial Finance

Association in Support of Appellants

Ann M. Aaronson

Lawrence G. McMichael (Argued)

Dilworth Paxson

1500 Market Street, Suite 2500E

Philadelphia, PA 19102

Counsel for Appellees

Philadelphia Newspapers, LLC, et al.

Ronald S. Gellert

Brya M. Keilson

Gary M. Schildhorn

Eckert, Seamans, Cherin & Mellott

50 South 16th Street

Two Liberty Place, 22nd Floor

Philadelphia, PA 19102

Ben H. Logan, III (Argued)

O'Melveny & Myers

400 South Hope Street, 15th Floor

Los Angeles, CA 90071

Counsel for Appellee / Cross Appellant

Official Committee of Unsecured Creditors

OPINION

FISHER, Circuit Judge.

4

We are asked in this appeal to decide whether Section

1129(b)(2)(A) of the Bankruptcy Code requires that any debtor

who proposes, as part of its plan of reorganization, a sale of

assets free of liens must allow creditors whose loans are secured

by those assets to bid their credit at the auction. Because

subsection (iii) of Section 1129(b)(2)(A) unambiguously permits

a debtor to proceed with any plan that provides secured lenders

with the “indubitable equivalent” of their secured interest in the

assets and contains no statutory right to credit bidding, we will

affirm the District Court’s approval of the proposed bid

procedures.

I.

Philadelphia Newspapers, LLC (the “Debtors1”) own and

operate the print newspapers the Philadelphia Inquirer and

Philadelphia Daily News and the online publication philly.com.

The Debtors acquired these assets in July 2006 for $515 million

as part of an acquisition of the businesses by an investor group

led by Philadelphia PR executive, Brian Tierney. $295 million

of this purchase price came from a consortium of lenders who

are collectively the appellants in this action (the “Lenders”).2

1

The Debtors include PMH Acquisition, LLC; Broad

Street Video, LLC; Philadelphia Newspapers, LLC;

Philadelphia Direct, LLC; Philly Online, LLC; PMH Holdings,

LLC; Broad Street Publishing, LLC; and Philadelphia Media,

LLC. PMH is the parent company of all other debtors.

2

The parties to this appeal are the Steering Group of

Prepetition Secured Lenders, Citizens Bank of Pennsylvania as

5

This loan was made pursuant to a Credit and Guaranty

Agreement dated June 29, 2006, between the Lenders and the

Debtors (the “Loan Agreement”). The Loan Agreement and

other loan documents provide that the Lenders hold first priority

liens in substantially all of the Debtors’ real and personal

property. The present value of the loan is approximately $318

million.

The Debtors were in default under covenants in the Loan

Agreement as of December 31, 2007, and defaulted on a loan

payment in September 2008. All of the Debtors besides PMH

Holdings filed voluntary petitions under Chapter 11 of the

Bankruptcy Code on February 22, 2009. PMH Holdings, the

parent company, filed in June 2009. Currently, the Debtors

control their businesses and property as debtors in possession.

On August 20, 2009, the Debtors filed a joint Chapter 11

plan of reorganization (the “Plan”). The Plan provides that

substantially all of the Debtors’ assets will be sold at a public

auction and that the assets would transfer free of liens. Debtors

simultaneously signed an asset purchase agreement with Philly

Papers, LLC (the “Stalking Horse Bidder”). A majority interest

in the Stalking Horse Bidder is held by the Carpenters Pension

and Annuity Fund of Philadelphia and Vicinity (“Carpenters”)

and Bruce Toll. The Carpenters own approximately 30% of the

equity in debtor PMH Holdings, LLC and Toll owned

approximately 20% of the equity in PMH Holdings, LLC until

the day before the asset purchase agreement was signed.

their agent, and the Official Committee of Unsecured Creditors.

6

Under the Plan, the purchase will generate approximately

$37 million in cash for the Lenders. Additionally, the Lenders

will receive the Debtors’ Philadelphia headquarters which the

Debtors have valued at $29.5 million, subject to a two-year rent

free lease for the entity that will operate the newspapers. The

Lenders would receive any cash that is generated by a higher bid

at the public auction.3

The Debtors filed a motion for approval of bid

procedures on August 28, 2009. As part of the motion, the

Debtors sought to preclude the Lenders from “credit bidding”

for the assets.4 Instead, the Debtors insisted that any qualified

bidder fund its purchase with cash. In their motion to the Court,

Debtors stated the basis for their procedures:

3

The plan also establishes a $750,000 to $1.2 million

liquidating trust fund in favor of general unsecured trade

creditors and provides for a distribution of 3% ownership in the

successful purchaser to other general unsecured creditors if the

senior lenders waive their deficiency claims. Only the plan

treatment of secured lenders is the subject of this appeal, though

unsecured lenders assert that they have an interest in the

treatment of secured lenders under the Plan because the Lenders

have agreed to waive deficiency claims if they are permitted to

credit bid. (Official Committee of Unsecured Creditor’s

Opening Br. 23.)

4

A credit bid allows a secured lender to bid its debt in lieu

of cash.

7

The Plan sale is being conducted under section

1123(a) and (b) of the Bankruptcy Code, and not

section 363 of the Bankruptcy Code. As such, no

holder of a lien on any asset of the Debtors shall

be permitted to credit bid pursuant to section

363(k) of the Bankruptcy Code.

(App. 1291.) Objections to the motion were filed by the

Lenders, the Creditors’ Committee, the Office of the United

States Trustee, the Pension Benefit Guaranty Corporations, and

other creditors and debtor pension plans.

On October 8, 2009, the Bankruptcy Court issued an

order refusing to bar the lenders from credit bidding. In re

Philadelphia Newspapers, LLC, No. 09-11204, slip op. (Bankr.

E.D. Pa. Oct. 8, 2009). The Court reasoned that while the Plan

proceeded under the “indubitable equivalent” prong of

§ 1129(b)(2)(A)(iii), it was structured as a § 1129(b)(2)(A)(ii)

plan sale in every respect other than credit bidding. Reading

§ 1129(b)(2)(A) in light of other provisions of the Code –

specifically §§ 363(k) and 1111(b) – the Court determined that

any sale of the Debtors’ assets required that a secured lender be

able to participate in a sale by credit bidding its debt.

The Bankruptcy Court then approved a revised set of bid

procedures without the ban on credit bidding on October 15,

2009. The revised bid procedures specifically allowed the

Lenders to bid their secured debt up to $318,763,725. The

Bankruptcy Court’s ruling was appealed to the District Court.

8

On November 10, 2009, the District Court reversed the

Bankruptcy Court. In re Philadelphia Newspapers, LLC, No.

09-mc-178, slip op. (E.D. Pa. Nov. 10, 2009) [hereinafter Dist.

Ct. slip op.]. It disagreed with the Bankruptcy Court’s

interpretation of § 1129(b)(2)(A) and held that the Code

provides no legal entitlement for secured lenders to credit bid at

an auction sale pursuant to a reorganization plan.

The District Court relied on the plain language of

§ 1129(b)(2)(A), which provides three distinct routes to plan

confirmation – retention of liens and deferred cash payments

under subsection (i), a free and clear sale of assets subject to

credit bidding under subsection (ii), or provision of the

“indubitable equivalent” of the secured interest under subsection

(iii). The Court reasoned that these three routes were

independent prongs, separated by the disjunctive “or,” and

therefore each was sufficient for confirmation of a plan as “fair

and equitable” under the Code. Because the right to credit bid

was not incorporated into subsection (iii), as it was in subsection

(ii), Congress did not intend that a debtor who proceeded under

the third prong would be required to permit credit bidding.

Instead, subsection (iii) required only that a debtor provide

secured lenders with the “indubitable equivalent” of their

secured interest in the assets. The District Court pointed out that

this broad language served as an “invitation to debtors to craft

an appropriate treatment of a secured creditor’s claim, separate

and apart from the provisions of subsection (ii).” Dist. Ct. slip

op. at 39. As such, “a plan sale is potentially another means to

satisfy this indubitable equivalent standard.” Id. at 39-40.

9

The District Court’s order was appealed to us along with

a motion for a stay. We granted the stay on November 17, 2009,

pending resolution of this appeal on the merits.

II.

The District Court had jurisdiction under 28 U.S.C.

§ 158(a)(3) over the appeal from the Bankruptcy Court,5 which

had jurisdiction under 28 U.S.C. § 157(b). We have jurisdiction

under 28 U.S.C. § 158(d).

We exercise plenary review over the District Court’s

conclusions of law, including matters of statutory interpretation.

In re Tower Air, Inc., 397 F.3d 191, 195 (3d Cir. 2005) (citing

In re Prof’l Ins. Mgmt., 285 F.3d 268, 282-83 (3d Cir. 2002)).

Because the District Court sat as an appellate court to review the

Bankruptcy Court’s ruling, we review the Bankruptcy Court’s

legal determinations de novo, its factual findings for clear error,

and its exercises of discretion for abuse thereof. Id. (citing In re

Engel, 124 F.3d 567, 571 (3d Cir. 1997)).

III.

Chapter 11 of the Bankruptcy Code strikes a balance

between two principal interests: facilitating the reorganization

5

The District Court construed the filing of the appeal as

an appropriate motion for leave to appeal pursuant to Fed. R.

Bankr. P. 8003(c). This vested the District Court with

jurisdiction over the interlocutory order. See Dist. Ct. slip op.

at 11-13.

10

and rehabilitation of the debtor as an economically viable entity,

and protecting creditors’ interests by maximizing the value of

the bankruptcy estate. See In re Integrated Telecom Express,

Inc., 384 F.3d 108, 119 (3d Cir. 2004) (citing Bank of Am. Nat’l

Trust & Sav. Ass’n v. 203 N. LaSalle St. P’ship, 526 U.S. 434,

453 (1999)). In furtherance of those objectives, the Code

permits a debtor preparing a Chapter 11 reorganization plan to

“provide adequate means for the plan’s implementation”

including arranging for the “sale of all or any part of the

property of the estate, either subject to or free of any lien[.]” 11

U.S.C. § 1123(a)(5)(D). We are asked in this appeal to

determine what rights a secured lender has when its collateral is

sold pursuant to § 1123(a)(5)(D).

As a starting point for our analysis, we note that the “plan

sale” authorized by § 1123(a)(5)(D) contains no explicit

procedures for the sale of assets that secure debts of the estate.

Lacking direct authority, we look to the plan confirmation

provision of the Code, § 1129(b), to determine what

requirements the court will later have to find are satisfied in

order to confirm the plan, including the asset sale. The meaning

of § 1129(b), and what rights it confers on secured lenders as a

matter of law, is thus the central question in this appeal.

Because § 1129(b) unambiguously permits a court to confirm a

reorganization plan so long as secured lenders are provided the

“indubitable equivalent” of their secured interest, we will affirm

the District Court.

The Lenders offer three principal arguments in support of

their right to credit bid at the auction of the assets securing their

loan: First, they contend that the plain language of

11

§ 1129(b)(2)(A), in light of applicable canons of statutory

interpretation, requires that all sales of assets free and clear of

liens must proceed under subsection (ii) of that provision, which

includes the right to credit bid. Second, they argue that

subsection (iii) calling for the “indubitable equivalent” of a

lender’s secured interest is ambiguous, requiring resort to other

provisions of the Code that purportedly confirm the Lenders’

right to credit bid. Finally, they argue that denying secured

lenders a right to credit bid is inconsistent with other provisions

of the Bankruptcy Code. We will address each argument in

turn.

A. The Plain Meaning of Section 1129(b)(2)(A) Permits

a Debtor to Conduct an Asset Sale Under Subsection

(iii) Without Allowing Secured Lenders to Credit Bid

It is the cardinal canon of statutory interpretation that a

court must begin with the statutory language. “[C]ourts must

presume that a legislature says in a statute what it means and

means in a statute what it says there. When the words of a

statute are unambiguous, then this first canon is also the last:

judicial inquiry is complete.” Conn. Nat’l Bank v. Germain, 503

U.S. 249, 253-54 (1992) (internal citations and quotations

omitted); see also Price v. Del. State Police Fed. Credit Union,

370 F.3d 362, 368 (3d Cir. 2004) (“We are to begin with the text

of a provision and, if its meaning is clear, end there.”). Where

the statutory language is unambiguous, the court should not

consider statutory purpose or legislative history. See AT&T, Inc.

v. F.C.C., 582 F.3d 490, 498 (3d Cir. 2009).

12

In determining whether language is unambiguous, we

“read the statute in its ordinary and natural sense.” Harvard

Secured Creditors Liquidation Trust v. I.R.S., 568 F.3d 444, 451

(3d Cir. 2009). A provision is ambiguous only where the

disputed language is “reasonably susceptible of different

interpretations.” Dobrek v. Phelan, 419 F.3d 259, 264 (3d Cir.

2005) (quoting Nat’l R.R. Passenger Corp. v. Atchinson Topeka

& Santa Fe Ry. Co., 470 U.S. 451, 473 n.27 (1985)).

With that framework in mind, we turn to the language of

§ 1129(b)(2)(A). Section 1129(b) provides circumstances under

which a reorganization plan can be confirmed over the objection

of secured creditors – a process referred to as a “cramdown”

because the secured claims are reduced to the present value of

the collateral, while the remainder of the debt becomes

unsecured, forcing the secured creditor to accept less than the

full value of its claim and thereby allowing the plan to be

“crammed down the throats of objecting creditors.” Kham &

Nate’s Shoes No. 2, Inc. v. First Bank of Whiting, 908 F.2d

1351, 1359 (7th Cir. 1990) (Easterbrook, J.). Section 1129(b)(1)

requires the court to assess whether the proposed treatment of

the secured claims is “fair and equitable.” 11 U.S.C.

§ 1129(b)(1).

Section 1129(b)(2)(A) provides three circumstances

under which a plan is “fair and equitable” to secured creditors:

(A) With respect to a class of secured claims,

the plan provides--

13

(i) (I) that the holders of such claims

retain the liens securing such

claims, whether the property

subject to such liens is retained by

the debtor or transferred to another

entity, to the extent of the allowed

amount of such claims; and (II) that

each holder of a claim of such class

receive on account of such claim

deferred cash payments totaling at

least the allowed amount of such

claim, of a value, as of the effective

date of the plan, of at least the

value of such holder’s interest in

the estate’s interest in such

property.

(ii) for the sale, subject to section

363(k) of this title, of any property

that is subject to the liens securing

such claims, free and clear of such

liens, with such liens to attach to

the proceeds of such sale, and the

treatment of such liens on proceeds

under clause (i) or (iii) of this

subparagraph; or

(iii) for the realization by the holders of

the indubitable equivalent of such

claims.

14

11 U.S.C. § 1129(b)(2)(A)(i)-(iii) (emphasis added).

The three subsections of § 1129(b)(2)(A) each propose

means of satisfying a lender’s lien against assets of the

bankruptcy estate. Subsection (i) provides for the transfer of

assets with the liens intact and deferred cash payments equal to

the present value of the lender’s secured interest in the

collateral. Subsection (ii) provides for the sale of the collateral

that secures a lender free and clear of liens so long as the lender

has the opportunity to “credit bid” at the sale (i.e., offset its bid

with the value of its secured interest in the collateral) with the

liens to attach to the proceeds of the sale.6 Subsection (iii)

provides for the realization of the claim by any means that

provides the lender with the “indubitable equivalent” of its

claim.

6

The right to credit bid is found in § 363(k) and explicitly

incorporated into subsection (ii). Section 363(k) provides:

At a sale under subsection (b) of this section of

property that is subject to a lien that secures an

allowed claim, unless the court for cause orders

otherwise the holder of such claim may bid at

such sale, and, if the holder of such claim

purchases such property, such holder may offset

such claim against the purchase price of such

property.

11 U.S.C. § 363(k).

15

The Lenders concede, as they must, that § 1129(b)(2)(A)

is phrased in the disjunctive. The use of the word “or” in this

provision operates to provide alternatives – a debtor may

proceed under subsection (i), (ii), or (iii), and need not satisfy

more than one subsection. This approach is consistent with the

definitions provided by the Code. Section 102(5) provides that

‘or’ is not exclusive[.]” 11 U.S.C. § 102(5). The statutory note

to § 102(5) further explains that “if a party ‘may do (a) or (b)’,

then the party may do either or both. The party is not limited to

a mutually exclusive choice between the two alternatives.” 11

U.S.C. § 102 hist. n. (West 2004) (Revision Notes and

Legislative Reports); see also H.R. Rep. No. 95-595, at 315

(1977) as reprinted in 1978 U.S.C.C.A.N. 5963, 6272; S.Rep.

No. 95-989, at 28 (1978) as reprinted in 1978 U.S.C.C.A.N.

5787, 5814. Thus, any doubt as to whether subsections (i), (ii),

and (iii) were meant to be alternative paths to meeting the fair

and equitable test of § 1129(b)(2)(A) is resolved by the

Bankruptcy Code itself, and courts have followed this

uncontroversial mandate. See, e.g., Pacific Lumber, 584 F.3d at

245 (affirming “the obvious proposition that because the three

subsections of § 1129(b)(2)(A) are joined by the disjunctive

‘or,’ they are alternatives”); Wade v. Bradford, 39 F.3d 1126,

1130 (10th Cir. 1994) (“These requirements [of

§ 1129(b)(2)(A)] are written in the disjunctive, requiring the

plan to satisfy only one before it could be confirmed over

creditor’s objection.”); In re Brisco Enters., Ltd. II, 994 F.2d

1160, 1168 (5th Cir. 1993) (holding that the court “has not

transformed the ‘or’ in 1129(b)(2)(A) to an ‘and’”); accord

Corestates Bank, N.A. v. United Chem. Techs., Inc., 202 B.R.

33, 50 (E.D. Pa. 1996) (“Courts consider Congresses’ use of the

disjunctive ‘or’ between subsections (i), (ii), and (iii) indicative

16

of Congressional intent that only one of the three subsections

need be satisfied in order to find a plan fair and equitable.”).

Though the ordinary operation of the word “or” is not

genuinely disputed among the parties,7 the Lenders rely on a

traditional canon of statutory interpretation – that the specific

term prevails over the general term – to argue that a plan sale of

7

We do note, with some confusion, our dissenting

colleague’s discussion of the “exclusive” nature of “or” under

certain circumstances. See Dissent op. Part II.B. We readily

concede that there are circumstances where the enumerated

options, though separated by “or,” necessarily preclude the

selection of both – such as where a statute calls for distinct

treatments “before” or “after” a specified event. See, e.g., 11

U.S.C. § 365(g)(2)(B)(i)-(ii). We also agree that a list of three

options, separated by “or,” creates a type of exclusivity in that

it does not permit the selection of a fourth non-enumerated

option. See, e.g., Williams v. Tower Loan of Miss., Inc. (In re

Williams), 168 F.3d 845, 847-48 (5th Cir. 1999) (holding that

where Congress has provided three permissible treatments of

secured claims under 11 U.S.C. § 1325(a)(5) the parties may not

construct a fourth extra-statutory option). None of these

observations, however, inform our analysis here. Section

1129(b)(2)(A) provides three treatments of secured claims, none

of which facially preclude the selection of any one treatment (as

in the case of a statute addressing “before” and “after”). The

Debtors here seek to elect one of those enumerated treatments,

subsection (iii), not invent a fourth option not intended by

Congress. We thus fail to see how an “exclusive” reading of

“or” aids the Lenders’ position in this case.

17

assets free and clear of liens must comply with the more specific

requirements of subsection (ii). In other words, the proposed

treatment of collateral determines which of the § 1129(b)(2)(A)

alternatives is applicable. Under this interpretation, any Chapter

11 plan proposing the transfer of assets encumbered by their

original liens must proceed under subsection (i), any plan

proposing the free and clear sale of assets must proceed under

subsection (ii), and only those plans proposing a disposition not

covered by subsections (i) and (ii), most notably the substitution

of collateral, may then proceed under subsection (iii). This

reasoning dictates that, because the Plan includes a sale of

collateral free and clear of liens, the Lenders would have a

statutory right to credit bid pursuant to the express terms of

subsection (ii).

It is “a well-settled maxim that specific statutory

provisions prevail over more general provisions.” In re

Combustion Eng’g, 391 F.3d 190, 237 n.49 (3d Cir. 2004). In

Combustion Engineering, we applied this principle to hold that

the broad equitable authority granted to bankruptcy courts by

§ 105(a) to issue “any order, process, or judgment that is

necessary or appropriate to carry out the provisions of this title,”

11 U.S.C. § 105(a), could not be used to circumvent the express

limitations of § 524(g), which enumerated limited circumstances

under which the court could enjoin suits against non-debtors

whose asbestos liabilities were derivative of the debtor’s, 11

U.S.C. § 524(g)(4)(a)(ii). Accordingly, we vacated an

injunction precluding suit against non-debtors whose liabilities

did not fall within those articulated in § 524(g), notwithstanding

the court’s more general equitable authority under § 105(a).

18

However, the Supreme Court has cautioned that “[t]o

apply a canon properly one must understand its rationale.”

Varity Corp. v. Howe, 516 U.S. 489, 511 (1996). The principle

motivating the outcome in Combustion Engineering was “a

warning against applying a general provision when doing so

would undermine limitations created by a more specific

provision.” 391 F.3d at 237 n.49 (quoting Varity Corp., 516

U.S. at 511) (emphasis added). Thus, the principle is only

applicable here if we find that the specificity of subsection (ii)

operates as a limitation on the broader language in subsection

(iii). We believe it does not.

The Supreme Court has addressed a nearly identical

argument, albeit under a different statutory scheme, and held

that a specific enumeration followed by a broader “catchall”

provision does not require application of the more specific

provision. Varity Corp., 516 U.S. at 511-12. The question in

Varity Corp. was whether § 502(a)(3) of ERISA authorized

individual relief when plan beneficiaries sued for breach of

fiduciary duty. ERISA’s remedial provision provides, in

relevant part:

Sec. 502. (a) A civil action may be brought- . . .

(2) by the Secretary, or by a participant,

beneficiary or fiduciary for appropriate relief

under section 1109 of this title; [or]

(3) by a participant, beneficiary, or fiduciary (A)

to enjoin any act or practice which violates any

provision of this subchapter or the terms of the

19

plan, or (B) to obtain other appropriate equitable

relief (i) to redress such violations or (ii) to

enforce any provisions of this subchapter or the

terms of the plan[.]

29 U.S.C. § 1132(a). Section 1109, describing the relief

available under subsection (2), is titled “Liability for Breach of

Fiduciary Duty” and provides that any individual who breaches

a fiduciary duty is personally liable to “make good to such plan

any losses to the plan.” 29 U.S.C. § 1109(a). Prior Supreme

Court analysis made clear that this language limited relief to

restitution to the plan, and thereby precluded individual relief

under § 1109(a). See Mass. Mut. Life Ins. Co. v. Russell, 473

U.S. 134, 144 (1985). Plaintiffs, as participants and

beneficiaries of the plan, sued Varity under subsection (3)

alleging breach of fiduciary duty and seeking individual

equitable relief.

The argument advanced by Varity mirrored the argument

advanced by the Lenders here: Varity argued that, because

subsection (2) specifically pertains to breaches of fiduciary duty,

and because it incorporates the § 1109(a) prohibition on

individual recovery, the plaintiffs could not avail themselves of

the more general subsection (3) when their suit was premised on

breach of fiduciary duty. To permit as much, Varity argued,

was to allow a circumvention of subsection (2)’s restrictions on

individual relief.

The Supreme Court rejected this argument. Considering

the application of the canon “the specific governs the general,”

the Court reasoned that it only applied where the more specific

20

provision clearly placed a limitation on the general. 516 U.S. at

511. The Court observed no such limitation in the narrower

provision of subsection (2):

To the contrary, one can read [§1109] as

reflecting a special congressional concern about

plan asset management without also finding that

Congress intended that section to contain the

exclusive set of remedies for every kind of

fiduciary breach. . . . Why should we not

conclude that Congress provided yet other

remedies for yet other breaches of other sorts of

fiduciary obligations in another, “catchall”

remedial section?

Id. at 511-12. The plaintiffs were thus permitted to proceed

under subsection (3) and seek individual equitable relief for the

alleged breach of fiduciary duty.

The Court’s reasoning in Varity Corp. helps to resolve

our inquiry into the relationship between the subsections of

§ 1129(b)(2)(A). Although subsection (ii) specifically refers to

a “sale” and incorporates a credit bid right under § 363(k), we

have no statutory basis to conclude that it is the only provision

under which a debtor may propose to sell its assets free and

clear of liens. While the proposed disposition of assets in

subsection (ii) may reflect “a special congressional concern”

about the free and clear transfer of collateral that secures a loan,

Varity Corp., 516 U.S. at 511, this does not lead inexorably to

the conclusion that Congress meant for subsection (ii) to be the

exclusive means through which such collateral is transferred.

21

Just as the Court in Varity Corp. concluded that the “catchall”

provision permitted “yet other remedies for yet other breaches

of other sorts of fiduciary obligations,” 516 U.S. at 512, it is

apparent here that Congress’ inclusion of the indubitable

equivalence prong intentionally left open the potential for yet

other methods of conducting asset sales, so long as those

methods sufficiently protected the secured creditor’s interests.

Accord In re CRIIMI MAE, Inc., 251 B.R. 796, 807 (Bankr. D.

Md. 2000) (“11 U.S.C. § 1129(b)(2)(A) plainly indicates that

subsections (i), (ii) and (iii) are to be treated as distinct

alternatives. As a result, the provisions are not in conflict and

the [‘specific governs the general’] rule of construction is

inapplicable.”).8

8

The Court’s reasoning in Varity Corp. also makes

abundantly clear that application of a broader provision, which

the court self-terms a “catchall,” 516 U.S. at 512, does not

automatically render narrower provisions superfluous. Such

would only be the case where the narrower provision facially

precludes application of that broader provision. Though our

dissenting colleague would hold otherwise, permitting a sale of

assets under subsection (iii) is not “contrary to the express

terms” of subsection (ii), dissent op. Part III.A.2. Subsection (ii)

provides a specific, though non-exclusive, route to a “fair and

equitable” plan of reorganization. Subsection (iii) provides a

more open-ended directive towards the same goal. The

selection of one option does not facially negate the other (as in

the case of provisions directing conduct “before” or “after,”see

supra note 7). Rather, the dissent suggests that the proposed

plan in this case – a free and clear sale of assets under the

“indubitable equivalent” prong – will have the effect of denying

22

The Lenders’ argument in this regard elevates form over

substance. A proposed plan of reorganization, even one that

fully compensates lenders for their secured interest, would

necessarily fail under their reading if the plan proposed a free

and clear asset sale without complying with the additional

requirements of subsection (ii). Reading the statute in this

manner significantly curtails the ways in which a debtor can

fund its reorganization – an outcome at odds with the

fundamental function of the asset sale, to permit debtors to

“provide adequate means for the plan’s implementation.” 11

U.S.C. § 1123(a)(5)(D); see also Varity Corp., 516 U.S. at 513

(rejecting a limited reading of the “catchall” provision because

“ERISA’s basic purposes favor a reading of the third subsection

that provides the plaintiffs with a remedy”).

secured creditors the established “fair and equitable” treatment

of subsection (ii), thus demonstrating statutory conflict. This

argument is not directed at the statute; it is directed at the

ultimate outcome. The question of whether a particular asset

sale is “fair and equitable” is a question for plan confirmation

and cannot be answered at this stage by manufacturing extra-

textual statutory constraints. See Pacific Lumber, 584 F.3d at

246 (“Clause (iii) does not render Clause (ii) superfluous

facially or as applied to the MRC/Marathon plan. Although a

credit bid option might render Clause (ii) imperative in some

cases, it is unnecessary here because the plan offered a cash

payment to the Noteholders. Clause (iii) thus affords a distinct

basis for confirming a plan if it offered the Noteholders the

‘realization . . . of the indubitable equivalent of such claims.’”).

23

The Fifth Circuit in Pacific Lumber, 584 F.3d 229,

reached this same conclusion. The transaction in Pacific

Lumber was an inside transfer of assets to the reorganized

entities, free and clear of the liens, which the Fifth Circuit

determined was a sale under the Code. Id. at 245. In exchange,

the secured lenders received the full cash equivalent of their

undersecured claims but were not permitted to bid their credit to

attain possession of the assets. The secured lenders objected to

the confirmation of the plan based on their inability to credit bid.

In analyzing the confirmation, the Fifth Circuit required

the creditors to “do more than show that Clause (ii) theoretically

applied to this transaction. They have to demonstrate its

exclusive applicability.” Id. The court reasoned that the

creditors could not demonstrate the exclusive application of

subsection (ii) because the three subsections of § 1129(b)(2)(A)

were “alternatives” and “not even exhaustive” of the ways in

which a debtor might satisfy the “fair and equitable”

requirement. Id. Thus, even though the debtors’ proposed asset

transfer was a “sale” under the Code, the court did not limit the

debtors to confirmation under subsection (ii). Id. at 245-46.

Rather, the court looked to whether the transaction satisfied the

requirements of subsection (iii). Id. at 246. Because the

proposed cash payout of the value of the collateral provided the

secured lenders with the “indubitable equivalent” of their

claims, the plan was confirmable under subsection (iii)

notwithstanding its structure as an asset sale and the exclusion

of the secured lenders’ right to credit bid. Id. at 246-47.

The court’s approach in Pacific Lumber focuses on

fairness to the creditors over the structure of the cramdown.

24

Under the scheme proposed by the Lenders, because the Pacific

Lumber plan involved a sale of assets, the debtor would be

required to proceed under subsection (ii); and, if it could not

meet the subsection (ii) requirements, then the plan could not be

confirmed. The Fifth Circuit instead took the more flexible

approach, consistent with the disjunctive nature of the statute,

that a plan could be confirmed so long as it met any one of the

three subsections’ requirements, regardless of whether the plan’s

structure more closely resembled another subsection. Id.;

accord Corestates Bank, 202 B.R. at 50 (holding that a plan

permitting retention of liens on some but not all collateral could

not proceed under subsection (i) and remanding for

consideration of whether the plan provided the indubitable

equivalent under subsection (iii)); CRIIMI MAE, 251 B.R. at

806 (rejecting argument that “no plan that contemplates the sale

of collateral of a dissenting class of secured claims can be found

‘fair and equitable’ unless it complies with section

1129(b)(2)(A)(ii)”).

This approach recognizes that Congress’ use of “or” in

§ 1129(b)(2)(A) was not without purpose. A plan of

reorganization cannot be confirmed over the objection of

secured lenders unless it is “fair and equitable.” 11 U.S.C.

§ 1129(b)(1). To guide courts in interpreting that standard,

Congress provided examples: a transfer of lien-encumbered

assets with deferred cash payments, a free and clear sale of

assets subject to credit bidding, or any other disposition that

provides lenders with the “indubitable equivalent” of their

secured interest. The final option elevates fair return to the

lenders over the methodology the debtor selects to achieve that

return, and invites debtors “to craft an appropriate treatment of

25

a secured creditor’s claim, separate and apart from the

provisions of subsection (ii).” Dist. Ct. slip op. at 39. We have

no statutory basis for concluding that such flexibility, consistent

with both the language and purpose of the Code, should be

curtailed.

B. Subsection (iii)’s “Indubitable Equivalent” Language

Unambiguously Excludes the Right to Credit Bid

Next, the Lenders argue that the term “indubitable

equivalent” is ambiguously broad and we should therefore resort

to other canons of statutory construction to determine whether

a sale of collateral in the absence of credit bidding can ever

provide the “indubitable equivalent” of the secured interest.

The term “indubitable equivalent,” while infrequently

employed in popular parlance, was not plucked from the

congressional ether. Judge Learned Hand first coined the phrase

“indubitable equivalent” in his opinion In re Murel Holding

Corp., 75 F.2d 941, 942 (2d Cir. 1935). In that opinion, Judge

Hand rejected a debtor’s offer to repay the balance of a secured

debt in a balloon payment ten years after plan confirmation with

interim interest payments but no requirements to protect the

collateral. Judge Hand reasoned that, under the Bankruptcy Act

of 1898, a secured creditor could not be deprived of his

collateral “unless by a substitute of the most indubitable

equivalence.” Id. This phrase was later added to the

Bankruptcy Code. The phrase, as the Fifth Circuit noted, is

“rarely explained in caselaw, because most contested

reorganization plans follow familiar paths outlined in Clauses (i)

and (ii).” Pacific Lumber, 584 F.3d at 246.

26

As a general matter of statutory construction, a term in a

statute is not ambiguous merely because it is broad in scope.

See Penn. Dep’t of Corrections v. Yeskey, 524 U.S. 206, 212

(1998). In employing intentionally broad language, Congress

avoids the necessity of spelling out in advance every

contingency to which a statute could apply. See Sedima,

S.P.R.L. v. Imrex Co., 473 U.S. 479, 499 (1985) (holding that

the fact that a statute can be “applied in situations not expressly

anticipated by Congress does not demonstrate ambiguity. It

demonstrates breadth.”).

Though broad, the phrase “indubitable equivalent” is not

unclear. Indubitable means “not open to question or doubt,”

Webster’s Third New Int’l Dictionary 1154 (1971), while

equivalent means one that is “equal in force or amount” or

“equal in value,” id. at 769. The Code fixes the relevant “value”

as that of the collateral. See 11 U.S.C. § 1129(b)(2)(A)(iii)

(requiring the “indubitable equivalent” of the secured claim); id.

§ 506(a) (defining a secured claim as “the extent of the value of

such creditor’s interest in the estate’s interest in such property”).

Thus the “indubitable equivalent” under subsection (iii) is the

unquestionable value of a lender’s secured interest in the

collateral.

Further, the scope of the “indubitable equivalent” prong

is circumscribed by the same principles that underlie subsections

(i) and (ii), specifically, the protection of a fair return to secured

lenders.9 As the Fifth Circuit reasoned:

9

The dissent misunderstands this point. See Dissent op.

Part III.A.1. Subsections (i) and (ii) do not, as noted supra,

27

Congress did not adopt indubitable equivalent as

a capacious but empty semantic vessel. Quite the

contrary, these examples focus on what is really

at stake in secured credit: repayment of principal

and the time value of money. Clauses (i) and (ii)

explicitly protect repayment to the extent of the

secured creditors’ collateral value and the time

value compensating for the risk and delay of

repayment. Indubitable equivalent is therefore no

less demanding a standard than its companions.

Pacific Lumber, 584 F.3d at 246.

Applying this standard, courts have concluded in a

variety of circumstances that a debtor has provided the

“indubitable equivalent” of a secured lender’s claim. See id. at

246 (holding a cash payout satisfied the “indubitable equivalent”

prong); In re Sun Country, 764 F.2d 406, 409 (5th Cir. 1985)

(holding 21 notes secured by 21 lots of land was the

“indubitable equivalent” of a first lien on a 200 acre lot); accord

CRIIMI MAE, 251 B.R. at 807-08 (holding exchange of

collateral satisfied the “indubitable equivalent” prong); see also

Kenneth N. Klee, All You Ever Wanted to Know About Cram

Down under the Bankruptcy Code, 53 Am. Bankr. L.J. 133, 156

(1979) (hypothesizing that “[a]bandonment of the collateral to

the class would satisfy [indubitable equivalent], as would a

replacement lien on similar collateral”).

operate as limitations on subsection (iii). Rather, the

requirement that the disposition of assets is “fair and equitable”

to secured lenders acts as an equal limitation on all subsections.

28

Because we decline to hold that subsection (iii) is

ambiguous, the Lenders may only assert a right to credit bid

under subsection (iii) if that right is contained in the plain

language of the statute. Section 1129(b)(2)(A)(iii) states that a

plan of reorganization is fair and equitable if it provides “for the

realization by the holders of the indubitable equivalent of

[allowed secured] claims.” Subsection (iii), unlike subsection

(ii), incorporates no reference to the right to credit bid created in

§ 363(k). A plain reading of § 1129(b)(2)(A)(iii) therefore

compels the conclusion that, when a debtor proceeds under

subsection (iii), Congress has provided secured lenders with no

right to credit bid at a sale of the collateral.

The Lenders counter this conclusion by arguing that,

even if subsection (iii) contains no explicit right to credit bid,

that right is necessary to providing secured lenders with the

“indubitable equivalent” of their claims. This argument is

premised on our decision in In re SubMicron Systems Corp., 432

F.3d 448 (3d Cir. 2006), where we held that credit bidders in a

§ 363(b) sale could bid up to the full value of their loan, and that

the amount of the credit bid became the value of the lender’s

secured interest in the collateral. In light of SubMicron, the

Lenders ask us to hold that a secured lender who is not allowed

to credit bid can never receive the “indubitable equivalent” of its

secured interest because its credit bid sets the value of the

collateral.

The Lenders’ argument is well-taken that determining

whether a secured lender has received the full value of its

interest in the collateral is more complicated when the collateral

undersecures the debt. To illustrate the distinction: A lender

29

who makes a loan of $100 secured by a lien against a truck

worth $500 indisputably has a secured interest of $100. If the

value of the truck depreciates such that, at the time of

bankruptcy, the truck is worth less than $100, then the lender

has a secured interest only up to the “value” of the truck. The

source of this “value” is central to this dispute to the extent that

it informs whether a lender has received the indubitable

equivalent of its secured interest.

SubMicron is consistent with our analysis in this case.

Our holding that a credit bid sets the value of a lender’s secured

interest in collateral does not equate to a holding that a credit bid

must be the successful bid at a public auction. Rather, a court

is called at plan confirmation to determine only whether a lender

has received the “indubitable equivalent” of its secured interest.

Logically, this can include not only the cash value generated by

the public auction, but other forms of compensation or security

such as substituted collateral or, as here, real property. In other

words, it is the plan of reorganization, and not the auction itself,

that must generate the “indubitable equivalent.” For this reason,

the District Court noted that Lenders “retain the right to argue

at confirmation, if appropriate, that the restriction on credit

bidding failed to generate fair market value at the Auction,

thereby preventing them from receiving the indubitable

equivalent of their claim.” Dist. Ct. slip op. at 55.

Although the Lenders contend that our approach here is

anomalous, the case law favors the Debtors. While the

reasoning in the myriad cases touching upon this issue is

admittedly inconsistent, no case cited by the Lenders reaches the

conclusion they advance here: that credit bidding is required

30

when confirmation is sought under subsection (iii). See, e.g., In

re River Village, 181 B.R. 795, 805 (E.D. Pa 1995) (permitting

credit bidding in a § 363(b) pre-confirmation sale but

confirming the reorganization under subsection (i)); In re

California Hancock, 88 B.R. 226, 230 (9th Cir. B.A.P. 1988)

(requiring credit bidding where confirmation was sought under

subsection (i)). Rather, most cases addressing the right to credit

bid have concluded, in keeping with the express language of the

statute, that such right arises when confirmation is sought under

subsection (ii). See, e.g., In re Kent Terminal, 166 B.R. 555,

566-67 (Bankr. S.D.N.Y. 1994) (holding that “the lienholder has

the unconditional right to bid in its lien” under subsection (ii)).

On the other hand, the Fifth Circuit has specifically

addressed whether a lender had a right to credit bid under

subsection (iii) and concluded that it did not. See Pacific

Lumber, 584 F.3d at 246. As discussed above, the court in

Pacific Lumber confirmed a sale of assets at private auction by

determining that the cash payout to the noteholders provided the

“indubitable equivalent” of their secured interest in the assets,

notwithstanding a provision barring secured lenders from credit

bidding. 584 F.3d at 246. Though Pacific Lumber was a plan

confirmation case, its holding on the threshold requirements of

§ 1129(b)(2)(A) speaks to our inquiry here – specifically, that a

debtor may proceed with a sale under subsection (iii) without

permitting secured lenders to credit bid. Accord CRIIMI MAE,

251 B.R. at 807 (reasoning that § 1129(b)(2)(A) permitted a

debtor to proceed with a sale free and clear of liens under

subsection (ii) or (iii), and that because only subsection (ii)

required credit bidding, a sale that proceeded under subsection

(iii) need only satisfy the “indubitable equivalent” requirement).

31

This rule, which proceeds from the plain language of the

statute, is not akin to guaranteeing plan confirmation. We are

asked here not to determine whether the “indubitable

equivalent” would necessarily be satisfied by the sale; rather, we

are asked to interpret the requirements of § 1129(b)(2)(A) as a

matter of law. This distinction is critical. The auction of the

Debtors’ assets has not yet occurred. Other public bidders may

choose to submit a cash bid for the assets. The value of the real

property that the Lenders will receive, in addition to cash, under

the terms of the proposed plan has not yet been established.

And the secured claim itself has not yet been judicially valued

under § 506(a).10 We are simply not in a position at this stage

10

Section 506(a) bifurcates claims into secured and

unsecured claims based on judicial valuation of the collateral

securing the claim. The statute directs that “[s]uch value shall

be determined in light of the purpose of the valuation and of the

proposed disposition or use of such property, and in conjunction

with any hearing on such disposition or use or on a plan

affecting such creditor's interest.” 11 U.S.C. § 506(a)(1). Prior

to plan confirmation the Lenders’ present loan value will be

bifurcated into a secured claim – based on valuation of the

collateral – and an unsecured claim for the deficiency. The

“indubitable equivalent” standard is tied only to the value of the

secured claim. Thus, any present comparison between the $295

million loan and the value of the Stalking Horse Bid is

irrelevant; the Lenders are only entitled to recover the portion of

the loan that is presently secured by the value of the collateral.

For this reason, we decline to engage in the dissent’s attempt to

assess the “value” of the proposed plan relative to the amount of

the original loan. See Dissent op. Part IV. This comparison is

32

to conclude, as a matter of law, that this auction cannot generate

the indubitable equivalent of the Lenders’ secured interest in the

Debtors’ assets. We approve the proposed bid procedures with

full confidence that such analysis will be carefully and

thoroughly conducted by the Bankruptcy Court during plan

confirmation, when the appropriate information is available.

Finally, in holding that § 1129(b)(2)(A) is not

ambiguous, we are cognizant of our dissenting colleague’s

strenuous admonition that two esteemed courts below have

reached opposite, and presumably “reasonable,” interpretations

of this statutory language. Dissent op. Part II. However, as

Justice Thomas has observed, “[a] mere disagreement among

litigants over the meaning of a statute does not itself prove

ambiguity; it usually means that one of the litigants is simply

wrong.” Bank of A. Nat’l Trust & Sav. Ass’n v. 203 N. LaSalle

St. P’ship, 526 U.S. 434, 461 (1991) (Thomas, J., concurring).

The same is true of disagreements among courts. See, e.g., In re

Ford, 574 F.3d 1279, 1293 (10th Cir. 2009) (“Case law

(including this very opinion) shows that courts can reasonably

disagree on the meaning of the term under various state laws.

But the plain language of [this provision] is clear, making resort

to its legislative history unnecessary and potentially

misleading.”). We decline to hold that a statutory provision is

ambiguous as a matter of law merely because two admittedly

well-reasoned opinions below reached opposite conclusions.

Were this the case, this Court would never be permitted to

reverse on plain language grounds a district court’s holding that

a provision is ambiguous because the district court’s reasonable

both premature and misleading.

33

disagreement would itself create an ambiguity. Clearly this is

not the case. See, e.g., First Merchants Acceptance Corp. v.

J.C. Bradford & Co., 198 F.3d 394, 398 (3d Cir. 1999)

(reversing district court holding, following California

Bankruptcy Court opinion, that 11 U.S.C. § 503(b)(4) was

ambiguous, holding instead that statutory language was subject

to only one reasonable interpretation).

Because the language of § 1129(b)(2)(A) is unambiguous

– both as to the non-exclusive enumeration of permissible

treatments of secured claims, and the inclusion of a broad but

not meaningless option to provide the “indubitable equivalent”

of secured interests – we will affirm the District Court.

C. The Plain Meaning of § 1129(b)(2)(A) is Not

Inconsistent with Congressional Intent

Our opinion could stop with a plain language analysis,

however, we are cognizant that the Supreme Court has

recognized a narrow exception to the plain meaning rule in the

“rare cases [where] the literal application of a statute will

produce a result demonstrably at odds with the intentions of its

drafters.” United States v. Ron Pair Enters., Inc., 489 U.S. 235,

242 (1989); see also Griffin v. Oceanic Contractors, Inc., 458

U.S. 564, 571 (1982) (permitting a “restricted rather than a

literal or usual meaning of [statutory] words where acceptance

of that meaning . . . would thwart the obvious purpose of the

statute”); Morgan v. Gay, 466 F.3d 276, 277-78 (3d Cir. 2006)

(noting “in that rare instance where it is uncontested that

legislative intent is at odds with the literal terms of the statute,

then a court’s primary role is to effectuate the intent of Congress

34

even if a word in the statute instructs otherwise”).11 Generally,

where the text of a statute is unambiguous, the statute should be

enforced as written and “[o]nly the most extraordinary showing

of contrary intentions in the legislative history will justify a

departure from that language.” United States v. Albertini, 472

U.S. 675, 680 (1985) (internal quotation omitted). We find no

extraordinary showing of contrary intent that warrants deviation

from the plain text of the statute.

The bulk of the Lenders’ arguments, as well as the weight

of the Bankruptcy Court’s reasoning, rely on the way in which

§§ 1111(b) and 363(k) inform a lender’s right to credit bid at the

sale of the debtor’s assets. The Lenders argue that the Code

guarantees a secured lender one of two rights – either the right

to elect to treat their deficiency claims as secured under

§ 1111(b) or the right to bid their credit under § 363(k).

Because the Lenders are statutorily precluded from making a

§ 1111(b) election,12 they contend that they must be afforded the

right to credit bid at the auction.

11

In addition, we believe it is necessary to at least answer

the points raised by the Lenders and relied upon by our

colleague in his well-written dissent.

12

Recourse lenders are exempted from making a

§ 1111(b) election. See 11 U.S.C. § 1111(b)(1)(B)(ii)

(exempting secured lenders from exemption if “the holder of a

[secured claim] has recourse against the debtor on account of

such claim and such property is sold under section 363 of this

title or is to be sold under the plan”).

35

A summary of the relevant statutory provisions informs

our analysis. Section 363 establishes certain rights and

procedures in connection with, inter alia, the sale of debtor

assets. Section 363(b) provides that the trustee “after notice and

a hearing, may use, sell, or lease, other than in the ordinary

course of business, property of the estate.” 11 U.S.C. § 363(b).

Such a sale is subject to the secured lender protections of

§ 363(k), which provide that:

At a sale under subsection (b) of this section of

property that is subject to a lien that secures an

allowed claim, unless the court for cause orders

otherwise the holder of such claim may bid at

such sale, and, if the holder of such claim

purchases such property, such holder may offset

such claim against the purchase price of such

property.

11 U.S.C. § 363(k). As discussed above, this is commonly

referred to as the right to “credit bid” and is incorporated by

reference into § 1129(b)(2)(A)(ii).

Section 1111(b) covers the treatment of certain claims

and interests of bankruptcy creditors, and provides unique

protections to undersecured lenders.13 Specifically

13

The full text of § 1111(b) reads:

(b)(1)(A) A claim secured by a lien on property of

the estate shall be allowed or disallowed under

section 502 of this title the same as if the holder

36

of such claim had recourse against the debtor on

account of such claim, whether or not such holder

has such recourse, unless–

(i) the class of which such claim is a part

elects, by at least two-thirds in amount and

more than half in number of allowed

claims of such class, application of

paragraph (2) of this subsection; or

(ii) such holder does not have such

recourse and such property is sold under

section 363 of this title or is to be sold

under the plan.

(B) A class of claims may not elect application of

paragraph (2) of this subsection if–

(i) the interest on account of such claims

of the holders of such claims in such

property is of inconsequential value; or

(ii) the holder of a claim of such class has

recourse against the debtor on account of

such claim and such property is sold under

section 363 of this title or is to be sold

under the plan.

(2) If such an election is made, then

notwithstanding section 506(a) of this title, such

37

§ 1111(b)(1)(A) is an exception to the general rule that creditors

who do not have recourse to the debtor are entitled to nothing

more than the realization of their collateral. Under § 1111(b),

Congress provided the option for nonrecourse creditors to have

their deficiency claims treated as secured debt. This is a

deviation from the process provided for in § 506(a), under which

the claim of an undersecured creditor is divided into: (1) a

secured claim equal to the court-determined value of the

collateral securing the claim, and (2) an unsecured claim for the

deficiency. 11 U.S.C. § 506(a)(1). A nonrecourse creditor who

makes a § 1111(b) election would be permitted to treat its

deficiency claim as secured. 11 U.S.C. § 1111(b)(2).

The § 1111(b) election is not available to recourse

creditors when the property is sold under § 363 or under a plan

of reorganization. 11 U.S.C. § 1111(b)(1)(B)(ii). As recourse

creditors whose collateral is being sold under a plan, the Lenders

are not eligible to make a § 1111(b) election. They argue that

the exemption of secured recourse creditors from the § 1111(b)

election is limited to situations in which they have the

opportunity to credit bid: specifically, a § 363 sale, under which

their right to credit bid is preserved by § 363(k), and a plan of

reorganization, under which their right to credit bid is

incorporated into § 1129(b)(2)(A)(ii). The import of these two

exceptions, according to the Lenders, is that Congress clearly

intended that any sale of collateral – whether under § 363 or a

plan of reorganization – would permit credit bidding by secured

lenders.

claim is a secured claim to the extent that such

claim is allowed.

38

This argument fails in light of the plain language and

operation of the Code. As an initial matter, the Code plainly

contemplates situations in which estate assets encumbered by

liens are sold without affording secured lenders the right to

credit bid. The most obvious example arises in the text of

§ 363(k), under which the right to credit bid is not absolute. A

secured lender has the right to credit bid “unless the court for

cause orders otherwise.” 11 U.S.C. § 363(k). In a variety of

cases where a debtor seeks to sell assets pursuant to § 363(b),

courts have denied secured lenders the right to bid their credit.

See In re Aloha Airlines, No. 08-00337, 2009 WL 1371950, at

*8 (Bankr. D. Haw. May 14, 2009) (determining that “cause

exists to deny the credit bid” under § 363(k)); Greenblatt v.

Steinberg, 339 B.R. 458, 463 (N.D. Ill. 2006) (holding the

“bankruptcy court did not err in refusing to allow [a secured

creditor] to credit bid”); In re Antaeus Technical Servs., Inc.,

345 B.R. 556, 565 (W.D. Va. 2005) (denying right to credit bid

to facilitate “fully competitive” cash auction); In re Theroux,

169 B.R. 498, 499 n.3 (Bankr. D.R.I. 1994) (noting that “there

is no absolute entitlement to credit bid”).14

14

The Lenders argue that the “for cause” exemption under

§ 363(k) is limited to situations in which a secured creditor has

engaged in inequitable conduct. That argument has no basis in

the statute. A court may deny a lender the right to credit bid in

the interest of any policy advanced by the Code, such as to

ensure the success of the reorganization or to foster a

competitive bidding environment. See, e.g., 3 Collier on

Bankruptcy 363.09[1] (“The Court might [deny credit bidding]

if permitting the lienholder to bid would chill the bidding

process.”).

39

At the heart of the Lenders’ argument is the notion that

the combined import of § 1111(b) and § 363(k) is a special

protection afforded to secured lenders to recognize some value

greater than their allowed secured claim – either by treating their

unsecured claim as a secured deficiency claim under § 1111(b),

or bidding their credit under § 363(k) in hopes of realizing a

potential upside in the collateral. Asserting an absolute right to

such preferential treatment is plainly contrary to other

provisions of the Code, which limit a secured lender’s recovery

to the value of its secured interest even when it is not permitted

to make a § 1111(b) election.15 For instance, if a debtor

proceeds with a sale of encumbered assets under subsection (i),

there is no § 1111(b) election because the assets are “sold under

the plan.” 11 U.S.C. § 1111(b)(1)(a)(ii). However,

§ 1129(b)(2)(A)(i)(I) still caps the transferred lien at the value

of the lender’s allowed secured claim, as established by judicial

15

It is perhaps this point upon which our opinion and the

dissent most fundamentally diverge. The dissent notes a variety

of rights enjoyed by secured creditors under “longstanding

nonbankruptcy law” – most notably the right to foreclose in the

event of default – and then argues that “Congress extended this

protection within bankruptcy.” Dissent op. Part III.B. While we

agree that Congress set out certain specific protections for

secured lenders, we view these protections as more evenly

balanced with the overarching purpose of the Chapter 11 – to

preserve the Debtor as a viable economic entity post-

reorganization. Tellingly in this regard, among the immediate

effects of the filing of a bankruptcy petition is a stay of all

creditors’ rights to foreclose on property of the debtor. See 11

U.S.C. § 362(a).

40

valuation under § 506(a). The deferred cash payments under

§ 1129(b)(2)(A)(i)(II), are also limited to the present value of

the deferred payments. Thus when a debtor proceeds under

subsection (i), a lender who is ineligible to make a § 1111(b)

election is still limited in its recovery to the judicial valuation of

its secured interest in the collateral.

As the court noted in Pacific Lumber, a secured lender’s

expectation of benefitting from the eventual appreciation of

collateral (the so-called “upside” of the collateral) is not an

entitlement when the property is part of a bankruptcy estate:

The Bankruptcy Code . . . does not protect a

secured creditor’s upside potential; it protects the

“allowed secured claim.” If a creditor were

over-secured, it could not demand to keep its

collateral rather than be paid in full simply to

protect the “upside potential.”

Pacific Lumber, 584 F.3d at 247. Rather, the Code provides for

a variety of treatments of secured claims, all of which are

calculated to balance the interests of the secured lender and the

protection of the reorganized entity, and none of which ensure

an advantageous return on a secured investment. These powers

are necessary to allow the debtor to “emerge from bankruptcy

with property cleansed of all hidden liens, ensuring that future

businesses will transact with the reorganized entity without fear

that an unanticipated creditor will emerge with a superior

interest in purchased property.” In re Airadigm Comms., Inc.,

519 F.3d 640, 649 (7th Cir. 2008).

41

Because our plain reading of § 1129(b)(2)(A) is not at

odds with the operation of §§ 1111(b) and 363(k), we may only

consider the legislative history advanced by the Lenders if it

evidences an “extraordinary showing of contrary intentions” by

Congress. Albertini, 472 U.S. at 680; see also Hay Group, Inc.

v. E.B.S. Acquisition Corp., 360 F.3d 404, 406 (3d Cir. 2004)

(“The Supreme Court has repeatedly explained that recourse to

legislative history or underlying legislative intent is unnecessary

when a statute’s text is clear and does not lead to an absurd

result.” (internal citation omitted)). There is no such

“extraordinary showing” here.

The specific history on which the Lenders rely is a

congressional statement made in connection with the enactment

of § 1111(b). In that statement, Representative Edwards noted:

Sale of property under section 363 or under a plan

is excluded from treatment under section 1111(b)

because of the secured party’s right to credit bid

in the full amount of its allowed claim at any sale

of collateral under section 363(k) of the House

Amendment.

124 Cong. Rec. 31795, 32407 (Sept. 28, 1978); 124 Cong. Rec.

33130, 34007 (identical remarks of Senator DeConcini). The

Lenders contend that this statement reflects Congressional intent

to ensure that secured lenders who could not make a § 1111(b)

election had the ability to credit bid under § 363(k).

The present dispute aside, this statement ignores at least

two uncontroverted circumstances, explained above, where a

42

secured creditor has neither a right to make a § 1111(b) election,

nor a right to credit bid under § 363(k): a transfer of

encumbered assets under § 1129(b)(2)(A)(i)(I) and a for-cause

exception to credit bidding under § 363(k). Given that this

legislative history ignores these vital functions of the Code, we

cannot credit it over the plain language of the statute to confer

an absolute right to credit bid on all asset sales under

§ 1129(b)(2)(A).

Ultimately, we are left where we began – where the

statutory directive is clear we are bound to enforce that

directive. To the extent this holding permits a course of conduct

not contemplated or not desirable under the Code, as the

Lenders argue it does, it is the sole province of Congress to

amend a statute that carries out by its plain language an

undesirable end. See Lamie v. U.S. Trustee, 540 U.S. 526, 538

(2004) (“Our unwillingness to soften the import of Congress’

chosen words even if we believe the words lead to a harsh

outcome is longstanding.”).

Finally, our holding here only precludes a lender from

asserting that it has an absolute right to credit bid when its

collateral is being sold pursuant to a plan of reorganization.

Both the District Court below and the Fifth Circuit in Pacific

Lumber contemplated that, in some instances, credit bidding

may be required. See 584 F.3d at 247. In addition, a lender can

still object to plan confirmation on a variety of bases, including

43

that the absence of a credit bid did not provide it with the

“indubitable equivalent” of its collateral.16

IV.

Accordingly, we agree with the District Court and the

Fifth Circuit that § 1129(b)(2)(A) is unambiguous and that a

plain reading of its provisions permits the Debtors to proceed

under subsection (iii) without allowing the Lenders to credit bid.

Because we are directed to cease our inquiry when we are

satisfied that the applicable statutory language is unambiguous,

we will affirm the District Court on those grounds.

16

For instance, the Lenders argue here that the

Bankruptcy Court made a factual finding that the exclusion of

credit bidding was not a legitimate exercise of the Debtors’

business judgment. Because the question before us is a purely

legal one, and because we find no basis in the record for

concluding that the Bankruptcy Court’s observation was a

finding of fact, we decline to address that argument here.

44

In re Philadelphia Newspapers, LLC

No. 09-4266

SMITH, Circuit Judge, concurring.

Judge Fisher has written well, and convincingly, and I

join his opinion without reservation—save for section III(C).

I write separately because recourse to legislative history, as

occurs in section III(C), is unnecessary as the statutory

language of § 1129(b)(2)(A) is unambiguous. “[R]ecourse to

legislative history or underlying legislative intent is

unnecessary when a statute’s text is clear and does not lead to

an absurd result.” Hay Group, Inc. v. E.B.S. Acquisition

Corp., 360 F.3d 404, 406 (3d Cir. 2004) (internal quotation

marks omitted); Lamie v. United States Tr., 540 U.S. 526, 534

(2004); AT&T Inc. v. Fed. Commc’ns Comm’n, 582 F.3d 490,

496-98 (3d Cir. 2009); Official Comm. of Unsecured

Creditors of Cybergenics Corp. ex rel. Cybergenics Corp. v.

Chinery, 330 F.3d 548, 559 (3d Cir. 2003) (en banc); United

States ex rel. Mistick PBT v. Housing Auth. of the City of

Pittsburgh, 186 F.3d 376, 395 (3d Cir. 1999); see United

States v. Terlingo, 327 F.3d 216, 221 n.1 (3d Cir. 2003)

(Becker, J.) (“[W]e may only look to legislative history if

[the] plain meaning produces a result that is not just unwise

but is clearly absurd.”) (internal quotation marks omitted); see

also Mitchell v. Horn, 318 F.3d 523, 535 (3d Cir. 2003)

(Ambro, J.) (“We do not look past the plain meaning unless it

produces a result demonstrably at odds with the intentions of

its drafters . . . or an outcome so bizarre that Congress could

not have intended it[.]”) (internal quotation marks and

citations omitted). This approach to statutory interpretation

1

“respects the words of Congress” and “avoid[s] the pitfalls

that plague too quick a turn to the more controversial realm of

legislative history.” Lamie, 540 U.S. at 536.

I sympathize with the dissent’s desire to honor what it

believes was Congress’s intent in codifying § 1129(b)(2)(A).1

But the near-gymnastics required to reach its conclusion

reveal the tenuous nature of this approach. As sensible as the

dissent’s approach to credit bidding may be, I simply cannot

look past the statutory text, which plainly supports the

conclusion that § 1129(b)(2)(A) does not require credit

1

That being said, I fear that the dissent’s interest in the policy

underlying § 1129(b)(2)(A), as evidenced by its reliance on an

unpublished manuscript, Dissenting Op. Section I(A), and a

trade publication article, id. at Section II(B), both of which

prescribe a disposition for the very appeal we are tasked with

deciding, has led it astray. There may be sound policy reasons

for the dissent’s approach, but such reasons cannot overcome

the plain meaning of § 1129(b)(2)(A). See DiGiacomo v.

Teamsters Pension Trust Fund of Philadelphia and Vicinity, 420

F.3d 220, 228 (3d Cir. 2005). “We do not sit here as a

policy-making or legislative body.” Id.; Cybergenics Corp., 330

F.3d at 587 (Fuentes, J., dissenting) (joined by Sloviter, Alito,

Smith, JJ.) (“[T]he Supreme Court has rejected the notion that

the federal courts have any policy-making role in construing

clear statutory language.”); see Lamie, 540 U.S. at 538 (“Our

unwillingness to soften the import of Congress’ chosen words

even if we believe the words lead to a harsh outcome is

longstanding.”).

2

bidding in plan sales of collateral free of liens. Section

1129(b)(2)(A) uses the word “or” to separate its subsections.

“‘[O]r’ is not exclusive[.]” 11 U.S.C. § 102(5). Thus,

satisfaction of any of the three subsections is sufficient to

meet the fair and equitable test of § 1129(b)(2)(A).

“Congress, of course, remains free to change [our] conclusion

[regarding § 1129(b)(2)(A)] through statutory amendment.”

Small v. United States, 544 U.S. 385, 394 (2005); Lamie, 540

U.S. at 542 (“If Congress enacted into law something

different from what it intended, then it should amend the

statute to conform it to its intent.”). For now, we are required

to apply the statute as written, and I am satisfied that its plain

text amply supports the result reached by the majority.

3

In Re: Philadelphia Newspapers, LLC, et al.

Nos. 09-4266 & 09-4349

AMBRO, Circuit Judge, dissenting

Although few in the first 30 years of Bankruptcy Code

jurisprudence read it that way, the majority today holds that 11

U.S.C. § 1129(b)(2)(A)(ii) is not the exclusive method through

which a debtor can cram down a plan calling for the sale of

collateral free of liens. I am convinced this is not what Congress

intended when it drafted the Bankruptcy Code.

Though I do not impugn as implausible my colleagues’

reasoning otherwise, I cannot agree that the plain language of

§ 1129(b)(2)(A) is unambiguous and compels the sole

interpretive conclusion they see as the plain meaning of the

words. There is more than one reasonable reading of the statute,

and thus we cannot simply look to its text alone in determining

what Congress meant in enacting it. When we apply long-

established canons of statutory interpretation to § 1129(b)(2)(A),

examine it in the context of the entire Bankruptcy Code, and

look at the section’s legislative history and the comments of

Code drafters, they all point to the conclusion that the Code

requires cramdown plan sales free of liens to fall under the

specific requirements of § 1129(b)(2)(A)(ii) and not to the

general requirement of subsection (iii). Thus I would reverse

the judgment of the District Court and restore the presumptive

right to “credit bid” provided in subsection (ii).

I. Background Matters

A. Factual Background

The debtors seek to sell their assets free of liens and to

stop their secured lenders from bidding at sale up to the full

credit they have extended. To understand why, we need to

know the backstory. While the majority summarizes many of

the relevant facts, I highlight a few that were omitted with

respect to the apparent motivations behind the attempt to deny

credit bidding here.

As part of a high-stakes game of chicken, the debtors

have engaged in an extensive advertising campaign related to

the proposed auction that promotes the message “Keep it

Local.” This is apparently a reference that the Stalking Horse

Bidder—largely composed of and controlled by the debtors’

current and former management and equityholders—is the

favored suitor.1 Perhaps the most striking example of the type

1

Judge Raslavich of the Bankruptcy Court picked up on this

in noting of the “Keep it Local” campaign that

there’s a lot of personal pronouns in those ads that

refer[] to “our plan” and “our retention of

ownership,” and arguably a reasonable reader of

that does come away with the notion that it’s

slanted not towards even another local bidder[,]

but to the [Stalking Horse Bidder]. That’s the

2

of game the debtors are playing is the two-years of free rent on

the building to be leased to the Stalking Horse Bidder, while

ostensibly “surrendering” the building to the secured lenders.

This did not go unnoticed by the Bankruptcy Court. It

observed that, on the facts of the case, credit bidding appeared

necessary to ensure fairness in light of the insider nature of the

Stalking Horse Bidder, the extensive “Keep it Local” campaign,

and its perception that the debtors’ strategies were designed “not

to produce the highest and best offer. . . .”2 In re Philadelphia

Newspapers, LLC, No. 09-11204, slip op. at 21 (Bankr. E.D. Pa.

fairest impression of those ads that it is endorsing

the retention of the newspaper by the stalking

horse bidder.

App. 1500a–01a (Hr’g Tr. 17:22–18:4, Sept. 9, 2009).

2

See also Vincent S.J. Buccola & Ashley C. Keller, Credit

Bidding and the Design of Bankruptcy Auctions at 18

(unpublished manuscript), available at

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1545423

(last accessed Mar. 5, 2010) (“Because corporations and the

people who manage them often have misaligned interests, it is

hardly implausible that a debtor’s officers would seek to sell the

bankrupt’s business to a low-value bidder in exchange for some

personal remuneration that does not redound to the benefit of the

enterprise as a whole. . . . [K]eeping willing buyers from casting

bids is the most effective means for management to steer the

debtor’s assets to a favored, low-value purchaser.”).

3

Oct. 8, 2009). Indeed, the Bankruptcy Court noted that there

was “little that points to a different conclusion.” Id. The Court

gave the debtors “the benefit of the doubt as to their motives,”

yet still could “discern no plausible business justification for the

restriction [on credit bidding] which Debtors [sought] to include

in the Bid Procedures.” Id. at 22.

The Stalking Horse Bidder is seeking to pay as little as

possible to obtain the assets “on the cheap” in a Circuit where

secured lenders are allowed to bid up to the full amount of their

debt owed despite Bankruptcy Code § 506(a) (which when

applicable “split[s] . . . partially secured claims into their

secured claim and unsecured claim components”). See Cohen

v. KB Mezzanine Fund II, LP (In re SubMicron Sys. Corp.), 432

F.3d 448, 461 (3d Cir. 2006). What typically occurs is that, if

there are no other bidders, the secured lenders get the assets

rather than the Stalking Horse Bidder (unless, of course, the

Stalking Horse Bidder increases its bid to a number that is the

secured lenders’ “reservation price,” i.e., the price they are

willing to have the Stalking Horse pay cash that will essentially

be transferred to them). If credit bidding is denied, however, the

debtors’ insiders stand to benefit by having more leverage to

steer the sale to a favored purchaser (here, the Stalking Horse

Bidder). This is explained below.

B. Credit Bidding

Though the majority does not discuss it at length, an

understanding of credit bidding is helpful. A credit bid allows

4

a secured lender to bid the debt owed it in lieu of other currency

at a sale of its collateral. In SubMicron, we discussed the

rationale behind credit bidding in the context of a sale of

debtors’ property outside the ordinary course of business under

§ 363 of the Bankruptcy Code. 432 F.3d at 459–61. We held

that a secured creditor can “credit bid” the entire face value of

its secured claim, including the unsecured deficiency portion.

The reason behind this was that a credit bid “by definition . . .

becomes the value of [the] [l]ender’s security interest in [the

collateral].” Id. at 460 (emphasis in original).

The practical rationale for credit bidding is that a secured

lender would “not outbid [a] [b]idder unless [the] [l]ender

believe[d] it could generate a greater return on [the collateral]

than the return for [the] [l]ender represented by [the] [b]idder’s

offer.” Id. Conversely, if a bidder believed that a secured

lender was attempting to swoop in and take the collateral below

market value and keep the upside for itself, that bidder

presumably would make a bid exceeding the credit bid. In this

manner, credit bidding is a method of ensuring to a secured

lender proper valuation of its collateral at sale.3

3

Like the majority’s reading of SubMicron, my reading of

that opinion (which I authored) also “does not equate to a

holding that a credit bid must be the successful bid at a public

auction.” Maj. Op. at 30. SubMicron’s logic presumes that the

credit bidder will not be the buyer if another bidder values the

assets more highly. It is curious why the majority even brings

up this point, for no doubt the credit bid need not be the winning

5

Although some may argue that credit bidding chills cash

bidding, that argument underwhelms; credit bidding chills cash

bidding no more than a deep-pocketed cash bidder would chill

less-well-capitalized cash bidders.4 Having the ability to pay a

certain price does not necessarily mean there is a willingness to

pay that price.

C. Cramdown

An understanding of cramdown is also helpful. Section

1129 of the Bankruptcy Code addresses the confirmation of

Chapter 11 plans, including plans that involve the sale of

property of the estate. Subsection 1129(a) provides the

bid; rather, the presumptive right to credit bid must be afforded

the secured creditor.

4

See also Buccola & Keller, supra, at 20–21 (“For instance,

if a would-be bidder knows that Warren Buffett plans to attend

an auction, she is also surely aware that Buffett can top her

reservation price for any or all of the assets on the block. Yet

nobody proposes to ban wealthy cash bidders from participating

in a bankruptcy auction. . . . Would-be bidders understand that

a deep-pocketed player’s ability to top their reservation price

does not imply a willingness to do so. Warren Buffett did not

become wealthy by overpaying for things, so it is possible,

indeed, probable, that his reservation price for an asset at

auction will be beneath that of another buyer. And buyers know

this in advance. The same logic holds for secured creditors.”)

(emphasis in original).

6

requirements that a plan must meet in order to gain confirmation

from the Bankruptcy Court. 11 U.S.C. § 1129(a) (“The court

shall confirm a plan only if all of the following requirements are

met . . . .”). Included is the requirement in § 1129(a)(8) that

each class of claims or interests either accept the plan or not be

impaired under it. Id. § 1129(a)(8). However, the debtor can

“cram down” the plan over the objections of an impaired class

by satisfying the requirements of § 1129(b).

The principal touchstone of cramdown under § 1129 is

that “the plan does not discriminate unfairly, and is fair and

equitable, with respect to each class of claims or interests that is

impaired under, and has not accepted, the plan.” Id.

§ 1129(b)(1). The requirements for what is “fair and equitable”

for secured claims are stated in subsection (b)(2)(A):

(2) For the purpose of this subsection, the

condition that a plan be fair and equitable with

respect to a class includes the following

requirements . . . (A) With respect to a class of

secured claims, the plan provides—

(i)

(I) that the holders of such claims

retain the liens securing such

claims, whether the property

subject to such liens is retained by

the debtor or transferred to another

entity, to the extent of the allowed

7

amount of such claims; and

(II) that each holder of a claim of

such class receive on account of

such claim deferred cash payments

totaling at least the allowed amount

of such claim, of a value, as of the

effective date of the plan, of at least

the value of such holder’s interest

in the estate’s interest in such

property;

(ii) for the sale, subject to section 363(k)5

of this title, of any property that is subject

to the liens securing such claims, free and

clear of such liens, with such liens to

5

Section 363(k) of the Bankruptcy Code provides the right

to credit bid, and it reads as follows:

(k) At a sale under subsection (b) of this section

[a sale other than in the ordinary course of

business] of property that is subject to a lien that

secures an allowed claim, unless the court for

cause orders otherwise the holder of such claim

may bid at such sale, and, if the holder of such

claim purchases such property, such holder may

offset such claim against the purchase price of

such property.

11 U.S.C. § 363(k).

8

attach to the proceeds of such sale, and the

treatment of such liens on proceeds under

clause (i) or (iii) of this subparagraph; or

(iii) for the realization by such holders of

the indubitable equivalent of such claims.

Id. § 1129(b)(2)(A). At issue for us is whether, when a plan

provides for a sale of secured property free of liens, subsection

(ii) is the sole point of reference for what is required to cram

down a plan on the secured creditor.

II. Section 1129(b)(2)(A) Has More Than One Plausible

Interpretation.

Though the majority attempts to use literal text in

isolation to support its conclusion, that reading cannot be the

only plausible reading of § 1129(b)(2)(A). Indeed, both the

District Court and the Bankruptcy Court read the statute in a

plausible fashion, yet came to opposite conclusions. Reasonable

minds can differ on the interpretation of § 1129(b)(2)(A) as it

applies to plan sales free of liens. This indicates that the

provision is ambiguous when read in isolation and does not have

a single plain meaning.6

6

In no way am I suggesting that disagreement between the

District Court and the Bankruptcy Court is dispositive of

ambiguity. Nor do I suggest that, when disagreement among

courts exists, we “would never be permitted to reverse [a

9

A. The more-recent interpretation of

§ 1129(b)(2)(A) adopted by the majority

To recap my colleagues’ reasoning, § 1129(b)(2)(A)(iii)

can be used to cram down a plan sale free of liens, without

credit bidding, over the objections of creditors because they read

the plain text as unambiguous. In support of their position, they

cite to a recent decision by the Fifth Circuit Court of Appeals,

authored by its Chief Judge, a highly respected former

bankruptcy lawyer. See Bank of N.Y. Trust Co., NA v. Official

Unsecured Creditors’ Comm. (In re Pacific Lumber Co.), 584

F.3d 229 (5th Cir. 2009) (Jones, C.J.).7 That case reasons that

District Court] on plain language grounds.” Maj Op. at 33–34.

I merely point out that each reasonable interpretation has been

adopted during the course of this litigation. The ambiguity is

tied to the susceptibility of the statutory text to two reasonable

interpretations and not that two courts have seen the issue

differently.

7

This is the only appellate decision to my knowledge holding

that plan sales free of liens may be accomplished through clause

(iii). My colleagues and the debtors also refer to a Bankruptcy

Court decision of recent vintage, In re CRIIMI MAE, Inc., 251

B.R. 796 (Bankr. D. Md. 2000), but the plan in that case is

easily distinguishable. Although it involved a plan sale of

collateral free of liens and without credit bidding, there was also

substitute collateral provided to help make up for any shortfall

from the proceeds of sale. Indeed, the CRIIMI MAE Court made

note of the distinction between a plan without substitute

10

because “or” is disjunctive, the three clauses of § 1129(b)(2)(A)

are “alternatives” that “are not even exhaustive.” Id. at 245.

(The latter is because the word “includes” in § 1129(b)(2) “is

not limiting.” Id. (citing 11 U.S.C. § 102(3)).) It thereby

concluded that the clauses were not compartmentalized

alternatives. Id. at 245–46. As a result, clause (iii) could be

analyzed in isolation and could provide a means of confirmation

without regard to clauses (i) and (ii). Id. at 246–47.

The Court next determined that clause (iii) did not render

clause (ii) superfluous facially or as applied to the plan before

it. Although it recognized that “a credit bid option might render

Clause (ii) imperative in some cases,” id. at 246, it determined

that a payment of sale proceeds to the secured lenders was an

“indubitable equivalent” because “paying off secured creditors

in cash can hardly be improper if the plan accurately reflected

the value of the . . . collateral,” id. at 247. Thus, the Court

rejected the secured lenders’ right to credit bid because the plan

accomplished its sale through clause (iii) (which does not

mention credit bidding), not clause (ii) (which does).

With Pacific Lumber as authority, my colleagues reason

that § 1129(b)(2)(A) provides three distinct alternatives for a

collateral under clauses (i) or (ii), and a plan with substitute

collateral under clause (iii). 251 B.R. at 807.

11

plan sale.8 Finding Congress’s use of “or” in § 1129(b)(2)(A)

8

The majority also relies heavily on a case interpreting

ERISA § 502(a), Varity Corporation v. Howe, 516 U.S. 489

(1996), to support its textual analysis of the Bankruptcy Code.

Varity held that ERISA § 502(a)(3) (allowing actions to remedy

violations of the terms of the benefit plan or subchapter I of

ERISA) could be used to redress some breaches of fiduciary

duty to plan participants because, even though § 502(a)(2)

already addressed fiduciary duties, it merely “reflect[ed] a

special congressional concern about plan asset management.”

516 U.S. at 511. That holding does not apply to our case, and in

any event does not lead inexorably to the majority’s conclusion.

Unlike the majority, I see no way to read clause (ii) of

Bankruptcy Code § 1129(b)(2)(A) as a “special congressional

concern” without also concluding that Congress intended clause

(ii) to be exclusively applicable to plan sales free of liens.

Clause (ii) is a broad statement that any time a plan proposes a

sale free of liens, regardless of the precise method (judicial sale,

auction, etc.), it must conform to the prescriptions of that

provision. While the majority is correct that “Congress’

inclusion of the indubitable equivalence prong intentionally left

open the potential for yet other methods of conducting asset

sales,” Maj. Op. at 22, the Bankruptcy Code does not make clear

that a debtor has options “other than, and in addition to,” 516

U.S. at 511, clause (ii) for a plan sale free of liens. Certainly a

debtor has the option to use other methods of plan sales (such as

a sale subject to lien or with a replacement lien), but a plan sale

free of liens goes to the heart of clause (ii). As discussed

below, it is illogical to think that Congress had a “special

concern” only with respect to plan sales free of liens and subject

12

“not without purpose,” the majority reads the statute to

to credit bidding, and not all plan sales free of liens. The

majority is missing a step in the logical progression when it

glosses over this fact without offering a compelling reason why

the provision should be read in a manner that effectively reads

out clause (ii).

Although the majority ostensibly uses Varity to hew to

the plain text, I believe the reason why the dissenting view in

Varity was rejected is instructive. Justice Thomas found that the

Varity majority’s holding “cannot be squared with the text or

structure of ERISA.” 516 U.S. at 516 (Thomas, J., dissenting).

Applying the same two canons of statutory interpretation I apply

below (the specific governs the general and anti-

superfluousness), Justice Thomas reached the textual conclusion

that the specific provision of § 502(a)(2) provided the “exclusive

mechanism for bringing claims of breach of fiduciary duty.” Id.

at 520, 521.

The Varity Court reached its unique interpretive result

over Justice Thomas’s dissent because of particular

idiosyncracies in the text of ERISA § 502(a), none of which

exists here (such as the narrow construction of § 502(a)(2) by

the Supreme Court in Massachusetts Mutual Life Insurance

Company v. Russell, 473 U.S. 134, 142 (1985)). Clause (ii) of

§ 1129(b)(2)(A) embodies a congressional concern about all

plan sales free of liens, and clause (iii) is the general provision

enacted by Congress for plan sales not otherwise accounted for.

Unlike ERISA § 502(a)(2), there is no “remainder” in the

universe of plan sales free of liens. As such, there is no need to

take the extra step the Varity Court did and provide a statutory

hook through clause (iii).

13

“elevate[] fair return to the lenders over the methodology the

debtor selects to achieve that return.” Maj. Op. at 26. Even

though clause (ii) specifically refers to a sale free of liens and

incorporates a general credit bid right, the majority permits

plans proposing a free and clear asset sale to fall under clause

(iii) because a contrary outcome would be “at odds with the

fundamental function of the asset sale, to permit debtors to

‘provide adequate means for the plan’s implementation.’” Id. at

11 (citing 11 U.S.C. § 1123(a)(5)(D)).

B. The longer-lived interpretation of

§ 1129(b)(2)(A)

The majority presents one reading. Another (the one I

subscribe to and, as noted below, the longer-lived reading)

exists. It restricts plan sales free of liens to clause (ii).

While the Code states that “‘or’ is not exclusive” in

§ 102(5) (and that is true as a general proposition), it is not

always the case in practice. Numerous sections of the

Bankruptcy Code employ the disjunctive “or” in a context where

the alternative options render the “or” exclusive. See, e.g., 11

U.S.C. § 365(g)(2)(B)(i)–(ii) (assumption of executory contrary

before or after conversion), 506(d)(1)–(2) (voiding liens for

disallowed claims for one of two reasons), 1112(b)(1)

(conversion or dismissal of a Chapter 11 case),

1325(a)(5)(B)–(C) (requirements for confirmation of a Chapter

13 plan), 1325(b)(3)(A)–(C) (means test categories),

1325(b)(4)(A)(i)–(ii) (same); see also Williams v. Tower Loan

14

of Miss., Inc. (In re Williams), 168 F.3d 845, 847–48 (5th Cir.

1999) (holding that § 1325(a)(5)(B) & (C) required an

exclusive-or construction to avoid creating an option that

Congress did not intend to create); 2 Collier on Bankruptcy

¶ 102.06 & n.1, at 102-13 (Alan N. Resnick & Henry J. Sommer

eds., 16th ed. 2009) (noting that a non-exclusive reading is

permissible only “if context and practicality allow” and citing to

§ 1112(b) as an example where “[i]t would be impossible for the

court to do both.”). Nor is an exclusive-or in our particular

context inconsistent with the cases cited by the majority, Maj.

Op. at 16–17, for those cases hold only that the word is the

disjunctive “or,” not the conjunctive “and.” The lesson is that

we “do not read [the Bankruptcy Code] with the ease of a

computer.” Kelly v. Robinson, 479 U.S. 36, 49 (1986) (citing

Bank of Marin v. England, 385 U.S. 99, 103 (1966) (interpreting

its predecessor, the Bankruptcy Act)).

Turning to the statutory text, the operative verb in

§ 1129(b)(2)(A) is not “includes,” as the Pacific Lumber panel

believed, but “provides” (that is, “[w]ith respect to a class of

secured claims, the plan provides . . .”). Cf. In re Pacific

Lumber Co., 584 F.3d at 245–46. The majority relies on this

section of Pacific Lumber to support its view of clauses (i)–(iii)

as non-exhaustive alternatives when applied to plan sales free of

liens. Maj. Op. at 24–25. Pacific Lumber looked to the verb

“includes,” but that verb attaches to § 1129(b)(2), not (b)(2)(A).

“Includes” is the verb that applies in (b)(2) because it covers not

only secured claims in subsection (A), but also unsecured claims

in subsection (B) and classes of interests in subsection (C). In

15

contrast, once we delve into (b)(2)(A), we are solely concerned

with the treatment of a class of secured claims, and the relevant

verb is “provides,” whereby Congress prescribes specific

treatments for specific scenarios of secured-claim treatment. By

way of example, this is similar to “provided,” the verb used in

§ 1325(a)(5) and construed to require an exclusive-or

construction in In re Williams, 168 F.3d at 846–47.

The language employed by Congress in clauses (i), (ii),

and (iii) of subsection (A) thus is susceptible to another

plausible reading: Congress did not list the three alternatives as

routes to cramdown confirmation that were universally

applicable to any plan, but instead as distinct routes that apply

specific requirements9 depending on how a given plan proposes

to treat the claims of secured creditors. In contrast, the majority,

in effect, “assume[s] that the plan proponent can simply choose

which of these three disjunctive specifications of the

requirement it wishes to satisfy.” Ralph Brubaker, Cramdown

of an Undersecured Creditor Through Sale of the Creditor’s

Collateral: Herein of Indubitable Equivalence, the § 1111(b)(2)

Election, Sub Rosa Sales, Credit Bidding, and Disposition of

Sale Proceeds, 29 No. 12 Bankruptcy Law Letter 1, 7–8 (Dec.

2009). But

9

I note that § 1129(b)(2) states “the condition that a plan be

fair and equitable with respect to a class includes the following

requirements . . . .” 11 U.S.C. § 1129(b)(2). These are not mere

examples, but specific requirements to be applied to distinct

scenarios.

16

[a] perfectly (and perhaps even more) plausible

alternative reading of the disjunctive specification

of three means of satisfying the requirement . . . is

that the plan’s proposed treatment of the secured

claim determines which of the three alternative

specifications of the requirement must be satisfied

....

Id. at 8. While “or” may be non-exclusive in the ordinary

course, the latter interpretation supports a reading of exclusivity

as applied to plan sales, with the applicable clause tied to what

a particular plan proposes.

That reading plays out as follows. Clause (i) applies to

a situation where the secured creditor retains the lien securing its

claim in a given class.10 11 U.S.C. § 1129(b)(2)(A)(i).

Clause (ii) applies to a situation where the plan “provides

. . . for the sale . . . of any property that is subject to the liens

securing such claims, free and clear of such liens.”11 Id.

10

By the very terms of clause (i), it applies “whether the

property subject to liens is retained by the debtor or transferred

to another entity.” 11 U.S.C. § 1129(b)(2)(A)(i)(I). This

includes sales of property where the secured creditor retains the

lien securing its claim because “transferred” encompasses sales.

11

I wonder if my colleagues’ conclusion is driven in part by

a misreading of clause (ii). They consider it as an “example”

17

§ 1129(b)(2)(A)(ii). It requires that the sale be “subject to

section 363(k) of [the Bankruptcy Code],” the provision that

gives a secured creditor the presumptive right to credit bid at the

sale. Id. (I say “presumptive” because the “court [can] for

cause order[] otherwise.” Id. § 363(k).) Furthermore, the

provision requires that the stripped liens move from the sold

property and “attach to the proceeds of such sale.” Id.

§ 1129(b)(2)(A)(ii). Finally, it directs that the liens transferred

to the proceeds be given “treatment . . . under either clause (i) or

clause (iii) of [§ 1129(b)(2)(A)].”12 Id.

provided by Congress and characterize it as “a free and clear

sale of assets subject to credit bidding.” Maj. Op. at 26. The

words “free and clear of such liens” in the clause modify the

noun “sale” and lead me to believe that clause (ii) is not merely

an example, but an entire category of sales that is prescribed a

specific treatment. Treating “sale . . . free and clear of such

liens” as an example as opposed to a prescription may explain

why my colleagues decline to apply the canons of statutory

interpretation I apply below. See 11 U.S.C. § 1129(b)(2)(A)(ii)

(“for the sale, subject to section 363(k) of this title, of any

property that is subject to the liens securing such claims, free

and clear of such liens”) (emphases added).

12

This provision also helps to understand in context the

hypothetical posed by the debtors’ counsel at oral argument.

See Oral Arg. Tr. at 39:23–40:22, 49:24–50:10. In this

hypothetical, a debtor has only two assets: a truck worth $100,

and a truck worth $500. The $500 truck is unencumbered, while

the $100 truck is encumbered by a $200 lien. Counsel argued

18

Clause (iii) applies whenever the plan “provides . . . for

the realization . . . of the indubitable equivalent” of a secured

creditor’s claim. Id. § 1129(b)(2)(A)(iii). Examples of these

situations include abandonment of property and providing

substitute collateral (also known as a replacement lien).13 See 7

that the only way to confirm a plan that sells the $100 truck free

and clear of liens, and instead gives the secured creditor a $100

lien on the $500 truck, is to proceed directly through clause (iii)

to confirm the plan sale.

This is incorrect. The correct analysis is that the $100

truck is sold under clause (ii), and the $100 lien attaches to the

proceeds. The lien on the proceeds is then treated under clause

(iii), and substitute collateral is provided in the form of a $100

lien on the $500 truck. Thus, clause (ii) ably handles this

hypothetical, and further obviates plan sales through clause (iii).

Alternatively, if the debtor wanted to avoid credit bidding

in that scenario, it could change the order of operations. The

debtor would first give the secured creditor for the $100 truck

the indubitable equivalent under clause (iii) by providing a

replacement lien in the unencumbered $500 truck. It would then

sell the now-unencumbered $100 truck, and because there is no

longer a lien on that truck securing a claim, the debtor need not

worry about the credit bid provision of § 1129(b)(2)(A)(ii).

13

Even a more complicated scheme such as the CoreStates

plan discussed by the debtors’ counsel at oral argument, Oral

Arg. Tr. 34:14–35:5, fits under this paradigm because it can be

classified as a plan providing for a replacement lien or some

combination of the clauses on a collateral-by-collateral basis.

CoreStates Bank, N.A. v. United Chem. Techs., Inc., 202 B.R.

19

Collier ¶ 1129.04[2][c] & nn. 38, 52 at 1129-127, -129.

“Indubitable equivalent” is not defined in the Code, but there

can be no doubt that the secured creditor receives consideration

equal to its claim in value or amount. See Webster’s Third New

Int’l Dictionary 1154 (1971) (indubitable means “not open to

question or doubt” or “too evident to be doubted”); id. at 769

(equivalent means one that is “equal in force or amount” or

“equal in value”). Although the language of clause (iii) is broad,

as discussed below it is a “catch-all” not designed to supplant

clauses (i) and (ii) where they plainly apply.

The reading of § 1129(b)(2)(A) just noted prescribes a

specific treatment that a plan must afford to secured creditors if

it allows them to retain the liens securing property. This is

clause (i). Likewise, this reading of the statute prescribes a

specific treatment if a plan sells property free and clear of a

secured creditor’s lien. This is clause (ii). And clause (iii)

prescribes a specific treatment for situations not addressed by

either clause (i) or clause (ii).

Proponents of this view believe Congress has prescribed

the full range of possible treatments of secured claims under a

plan in a compartmentalized fashion. See, e.g., In re SunCruz

33, 49–51 (E.D. Pa. 1996) (leaving open the possibility of

confirmation under clause (iii) even though clause (i)

requirements were not met in a plan that did not call for the sale

of collateral, but instead provided for a combination of reduced

collateral and partial immediate payment).

20

Casinos, LLC, 298 B.R. 833, 838 (Bankr. S.D. Fla. 2003); In re

Kent Terminal Corp., 166 B.R. 555, 566–67 (Bankr. S.D.N.Y.

1994). Moreover, this interpretation is supported by academic

discourse. See, e.g., Brubaker, supra, at 8 (“The obvious

disjunctive specification of alternative requirements, therefore,

does not unambiguously permit the plan proponent to simply

choose the requirement that it wishes to satisfy and bypass a

requirement that specifically addresses, on its face, the treatment

that the plan proposes.”).

III. Principles of Statutory Interpretation Decide Which

of Two Reasonable Readings Is the More Plausible.

My colleagues’ reading of § 1129(b)(2)(A) is not a trip

to the twilight zone. Neither is mine. We must choose between

two plausible readings of § 1129(b)(2)(A): one that allows sales

of collateral free of liens under clause (iii) without credit

bidding, and another that only allows such sales under clause (ii)

with credit bidding generally available. With these competing

maps, we need a compass pointing to the right interpretive

result. In this context, I review the protocols for how courts

interpret statutes. This includes applying canons of statutory

interpretation, examining the context of related statutory

provisions, and, when appropriate, looking to legislative history

and comments of Code drafters to help understand a statute’s

literal words.

To know as best we can what a law means is to know as

best we can what those who wrote it meant when they did so.

21

Meaning equals intent, and intent paves the path for our

interpretation.

Our search for knowledge of intent begins with the law’s

language. In re Armstrong World Indus., Inc., 432 F.3d 507,

512 (3d Cir. 2005) (citing United States v. Ron Pair Enters.,

Inc., 489 U.S. 235, 241 (1989)). “[W]e begin with the

understanding that Congress says in a statute what it means and

means in a statute what it says there.” Official Comm. of

Unsecured Creditors of Cybergenics Corp ex rel. Cybergenics

Corp. v. Chinery, 330 F.3d 548, 559 (3d Cir. 2003) (en banc)

(citing Hartford Underwriters Ins. Co. v. Union Planters Bank,

530 U.S. 1, 6 (2000)). “When ‘the statute’s language is plain,

the sole function of the courts—at least where the disposition

required by the text is not absurd—is to enforce it according to

its terms.’” Id. (citing Hartford Underwriters, 530 U.S. at 6);

see also Ron Pair, 489 U.S. at 241. “We should prefer the plain

meaning since that approach respects the words of Congress. In

this manner we avoid the pitfalls that plague too quick a turn to

the more controversial realm of legislative history.” Lamie v.

U.S. Tr., 540 U.S. 526, 536 (2004).

Yet words that may seem plain often are not. See United

Parcel Serv., Inc. v. U.S. Postal Serv., 455 F. Supp. 857, 865

(E.D. Pa. 1978) (Becker, J.) (“Although it is received wisdom

that when a statute’s plain meaning is clear ‘the duty of

interpretation does not arise and the rules which are to aid

doubtful meanings need no discussion,’ it is also an endorsed

caveat to this rule that ‘[w]hether . . . the words of a statute are

22

clear is itself not always clear.’”) (citations omitted); see also

Tex. State Comm’n for the Blind v. United States, 796 F.2d 400,

406 (Fed. Cir. 1986) (en banc) (same).

Canons of statutory interpretation counsel courts to read

the statutory scheme in a manner that gives effect to every

provision Congress enacted and avoids general provisions

swallowing specific provisions, especially when to do so makes

the specific superfluous. See TRW Inc. v. Andrews, 534 U.S. 19,

31 (2001); D. Ginsberg & Sons v. Popkin, 285 U.S. 204, 208

(1932). In addition, any search for the meaning of words needs

context for understanding intent, particularly when dealing with

the Bankruptcy Code. Cybergenics, 330 F.3d at 559

(“[S]tatutory construction is a holistic endeavor . . . .” (citing

United Sav. Ass’n of Tex. v. Timbers of Inwood Forest Assocs.,

Ltd., 484 U.S. 365, 371 (1988))). A court “must not be guided

by a single sentence or member of a sentence, but look to the

provisions of the whole law and to its object and policy.” Id.

(citing Kelly v. Robinson, 479 U.S. 36, 43 (1986)). Indeed, “[a]

provision that may seem ambiguous in isolation is often clarified

by the remainder of the statutory scheme . . . because only one

of the permissible meanings produces a substantive effect that

is compatible with the rest of the law.” Timbers, 484 U.S. at

371. If ambiguity in statutory text remains, a court may inquire

beyond the plain language into the legislative history. See Blum

v. Stenson, 465 U.S. 886, 896 (1984).

Congress worked on drafting the Bankruptcy Code for

nearly a decade, and it “intended ‘significant changes from

23

[prior] law in . . . the treatment of secured creditors and secured

claims.’” Ron Pair, 489 U.S. at 240 (citations omitted). “[A]s

long as the statutory scheme is coherent and consistent, there

generally is no need for a court to inquire beyond the plain

language of a statute.” Id. at 240–41. This plain meaning

“should be conclusive, except in the ‘rare cases [in which] the

literal application of a statute will produce a result demonstrably

at odds with the intentions of its drafters.’” Id. at 242 (citation

omitted). A result may be demonstrably at odds with the

intentions of the Code’s drafters if it “conflict[s] with any other

section of the Code, or with any important state or federal

interest . . . [or] a contrary view suggested by the legislative

history.” Id. at 243.

With this in mind, applying well-established principles of

statutory interpretation leads me to conclude that

§ 1129(b)(2)(A)(ii) is the sole provision applicable to plan sales

free of liens.

A. Canons of Statutory Construction

1. Specific provisions prevail over general

provisions.

Statutory Construction 101 contains the canon that a

specific provision will prevail over a general one. See Norman

J. Singer & J.D. Shambie Singer, 2A Sutherland Statutes and

Statutory Construction § 46:5 (“Where there is inescapable

conflict between general and specific terms or provisions of a

24

statute, the specific will prevail.”). This canon long predates

both the Bankruptcy Code and the prior Bankruptcy Act, and

Congress no doubt was well aware of it when crafting the Code.

“General language of a statutory provision, although broad

enough to include it, will not be held to apply to a matter

specifically dealt with in another part of the same enactment.

Specific terms prevail over the general in the same or another

statute which otherwise might be controlling.” Popkin, 285 U.S.

at 208 (construing sections of the Bankruptcy Act of 1898)

(citations omitted); see also Nat’l Cable & Telecomms. Ass’n,

Inc. v. Gulf Power Co., 534 U.S. 327, 335–36 (2002) (“It is true

that specific statutory language should control more general

language when there is a conflict between the two . . . [, unless]

there is no conflict [and] [t]he specific controls . . . only within

its self-described scope.”); Fourco Glass Co. v. Transmirra

Prods. Corp., 353 U.S. 222, 228–29 (1957) (“However inclusive

may be the general language of a statute, it will not be held to

apply to a matter specifically dealt with in another part of the

same enactment.”) (citations omitted); Clifford F. MacEvoy Co.

v. United States ex rel. Calvin Tomkins Co., 322 U.S. 102, 107

(1944) (same) (citing Popkin, 285 U.S. at 208).

There are two specific clauses in the context of the “fair

and equitable” requirements of a plan and one general clause.

To repeat, clause (i) applies to all situations, including plan

sales, where the lien on the sold collateral is retained. Clause

(ii) applies to all plan sales that sell the collateral lien-free. It

provides specific requirements to apply when a plan proposes

such a sale. Clause (iii) is a general provision often regarded as

25

a residual “catch-all”14 that applies to the balance of situations

not addressed by clauses (i) and (ii).

To use clause (iii) to accomplish a sale free of liens, but

without following the specific procedures prescribed by clause

(ii), undoubtedly places the two clauses in conflict. It seems

Pickwickian to believe that Congress would expend the ink and

energy detailing procedures in clause (ii) that specifically deal

with plan sales of property free of liens, only to leave general

language in clause (iii) that could sidestep entirely those very

procedures. Unlike the majority, I do not read the language to

signal such a result; I read the text to show congressional intent

to limit clause (iii) to those situations not already addressed in

prior, specifically worded clauses.15

14

In the similar context of adequate protection under § 361,

we have held that the phrase “indubitable equivalent” in the

third of § 361’s three subclauses is “regarded as a catch all,

allowing courts discretion in fashioning the protection provided

to a secured party.” Resolution Trust Corp. v. Swedeland Dev.

Group, Inc. (In re Swedeland Dev. Group, Inc.), 16 F.3d 552,

564 (3d Cir. 1994) (en banc) (emphasis added).

15

Nor is clause (ii) so specific so as to render itself

inconsequential even though it includes a proviso set off by

commas from the rest of the clause—“subject to section 363(k)

of this title.” 11 U.S.C. § 1129(b)(2)(A)(ii). The grammatical

structure of a statute, including the positioning of commas,

should be considered in statutory interpretation, and indeed, it

can “mandate” a particular reading of a statute. Ron Pair, 489

26

Inasmuch as the majority argues that clause (ii) does not

operate as a limitation on clause (iii) because they are not in

conflict, Maj. Op. at 22–23 & n.8, I do not understand how that

can be the case here. Clause (ii) requires a presumptive right to

credit bid at a plan sale free of liens; as construed by the

majority, clause (iii) can be used in a plan sale free of liens

without a right to credit bid. When one clause makes the right

presumptive, and the other makes that right nonexistent, and

both are believed to govern an otherwise identical sale scenario,

U.S. at 241–42. Mirroring Ron Pair, which concerned the

construction of another provision in the Bankruptcy Code

(§ 506(b)), we are confronted by a “phrase . . . set aside by

commas” from the balance of the sentence. Id. at 241.

Without the commas here, the object of the sentence is no

longer a “sale,” but is instead a “sale subject to section 363(k).”

Such a grammatical structure would mean that clause (ii) only

applies to the narrow class of sales that are subject to § 363(k).

This makes no sense, inasmuch as § 363(k) on its own swims

only in the lane of non-plan sales outside the ordinary course of

business. It expands its coverage to plan sales by virtue of

§ 1129(b)(2)(A)(ii).

Thus, I believe we cannot ignore the punctuation and the

“natural reading” that Congress has provided us and limit the

scope of clause (ii). “[S]ubject to section 363(k)” is a non-

restrictive clause specifying the requirements to be followed

under clause (ii), not the scope of the clause’s applicability.

With this understanding, clause (ii) is applicable to all sales free

and clear of liens securing claims, and all sales under clause (ii)

must comply with the requirements outlined in § 363(k).

27

there is undisputably a conflict between the construction of the

provisions. Indeed, the majority later contradicts itself when it

states that “the scope of the ‘indubitable equivalent’ prong is

circumscribed by the same principles that underlie subsections

(i) and (ii).” Id. at 28. As I understand it, to circumscribe the

scope is to limit that scope. See Webster’s Third New Int’l

Dictionary 410 (defining circumscribe as “to surround by or as

if by a boundary . . . [or] to set limits or bounds to . . . [or] to

constrict the range or activity of . . . [or] to define, mark off, or

demarcate carefully”).

Although it may be facile to conclude that the general

language of clause (iii) is applicable to plan sales free of liens,

such a result ignores the specific language Congress enacted in

clause (ii).

2. The majority’s reading violates the anti-

superfluousness canon.

A “cardinal principle of statutory interpretation” is that

no provision “shall be superfluous, void, or insignificant.”

TRW, 534 U.S. at 31; see Gustafson v. Alloyd Co., 513 U.S. 561,

574 (1995) (“[T]he Court will avoid a reading which renders

some words altogether redundant.”); Mountain States Tel. & Tel.

Co. v. Pueblo of Santa Ana, 472 U.S. 237, 249 (1985) (applying

the “elementary canon of construction that a statute should be

interpreted so as not to render one part inoperative” (citations

omitted)).

28

As noted above, § 1129(b)(2)(A) has two specific clauses

and one general clause in the context of the “fair and equitable”

requirements of a plan. Clause (iii) cannot apply where clause

(i) or clause (ii) apply, as otherwise those clauses become no

more than measures seen only as overmuch. The Bankruptcy

Code would not need the “intricate phraseology,” Timbers, 484

U.S. at 373, of the three clauses under § 1129(b)(2)(A), but

instead would simply have said that, “[w]ith respect to a class of

secured claims, the plan provides for the realization by such

holders of the indubitable equivalent of such claims.” A

presumptive right to credit bid would not need to be specifically

mentioned if, as the majority believes, it was not a requirement

of a plan sale free of liens.

Because “[i]t is our duty ‘to give effect, if possible, to

every clause . . . of the [s]tatute,’” I do not read clause (iii) in a

fashion that renders clauses (i) and (ii) unnecessary. Duncan v.

Walker, 533 U.S. 167, 174 (2001) (citations omitted);

Gustafson, 513 U.S. at 574. To do so would render clause (ii)

“a practical nullity.” Timbers, 484 U.S. at 375. I know no

reason why Congress would want to allow the more general

language of clause (iii) to reach an outcome contrary to the

express terms of a provision in the same subsection of

§ 1129(b)(2)(A)—clause (ii). Thus, the anti-superfluous canon

supports a reading that restricts to clause (ii) plan sales free of

liens.

29

B. Context can give clarity to statutes.

Disputed laws set in context may “clarif[y] . . . the

remainder of the statutory scheme.” Timbers, 484 U.S. at 371.

As context colors content, we look beyond the individual

provision and consider § 1129(b)(2)(A) as a part of a coherent

whole—the Bankruptcy Code. The Code recognizes that

secured lenders have bargained for a property interest in the

collateral. Under longstanding nonbankruptcy law they are

entitled to foreclose on the collateral by selling it and keeping

the proceeds up to the amount of the debt secured by the

collateral. See, e.g., Louisville Joint Stock Land Bank v.

Radford, 295 U.S. 555, 594–95 (1935) (Brandeis, J.) (“[T]he

[secured lender] [has] the following property rights recognized

by [state law]: . . . The right to protect its interest in the property

by bidding at such sale whenever held, and thus to assure having

the mortgaged property devoted primarily to the satisfaction of

the debt, either through receipt of the proceeds of a fair

competitive sale or by taking the property itself.”).

Congress extended this protection within bankruptcy and,

in keeping with the Butner principle, intended to preserve the

presumptive right of a secured creditor under applicable state

law to take the property to satisfy the debt. See Butner v. United

States, 440 U.S. 48, 55 (1979) (holding that, “[u]nless some

federal interest requires a different result,” bankruptcy law

requires “[u]niform treatment of property interests by both state

and federal courts”). In circumstances where this was not

possible, Congress provided other protections in the Bankruptcy

30

Code for the secured creditor. These other provisions explain

the object and policy of the Bankruptcy Code when addressing

the “cramdown” of a plan over a secured creditor’s objection.

Other sections of the Code related to plan sales of

encumbered property free of its liens, as well as sections

concerning the protection afforded to secured creditors, support

a reading of § 1129(b)(2)(A) that clause (ii) is the exclusive way

to confirm cramdown plan sales of property free of liens. Of

particular note are three related provisions in the

Code—§§ 1123(a)(5)(D), 363(k), and 1111(b). Those sections,

in conjunction with § 1129(b)(2)(A), are integrated parts of

congressional policy pertaining to secured creditors’ rights when

their collateral is sold, as recognized in bankruptcy’s leading

treatise and in academic literature. See 7 Collier

¶¶ 1129.04[2][b][i], [ii] & n.33, at 1129-125 to -126; Kenneth N.

Klee, All You Ever Wanted to Know About Cram Down Under

the New Bankruptcy Code, 53 Am. Bankr. L.J. 133, 155

(1979).16

1. Section 1123(a)(5)(D)

Bankruptcy Code § 1123 governs the contents of a

Chapter 11 plan, and it allows plans to provide adequate means

16

Professor Klee served as associate counsel to the

Committee on the Judiciary, U.S. House of Representatives, and

was one of the principal drafters of the Bankruptcy Code.

31

for implementation, including the “sale of all or any part of the

property of the estate, either subject to or free of any lien.” 11

U.S.C. § 1123(a)(5)(D). Plans can provide for sales of collateral

in one of two fashions: (1) subject to lien, or (2) free of any lien.

As to the liens themselves, there are two types: (a) the original

lien securing a claim, or (b) a replacement lien securing a claim.

Accordingly, we have three ways in which a plan can provide

for the sale of collateral: (i) subject to the initial lien retained by

the secured creditor, (ii) free of any lien, or (iii) after providing

a replacement lien on different collateral (such that the

previously liened collateral is sold unencumbered). These three

possibilities correspond to clauses (i), (ii), and (iii), and help to

clarify the three alternatives in § 1129(b)(2)(A).17 Section

1123(a)(5)(D) thus appears to place all plan sales of property

securing debt, which are sold clear of liens, within the purview

of § 1129(b)(2)(A).

I disagree with the majority that § 1123(a)(5)(D), in

permitting debtors to “provide adequate means for the plan’s

implementation,” allows them to craft a means (a cramdown

plan sale free of liens without credit bidding) that is contrary to

the express text of the Bankruptcy Code. The majority argues

that to “read the statute in [a limiting] manner significantly

17

Clause (iii) also applies to abandonment of property, but

that application is not implicated when the collateral is sold. See

In re Sandy Ridge Dev. Corp., 881 F.2d 1346, 1350 (5th Cir.

1989). Likewise, clause (i)’s applicability to non-sale transfers

is not implicated when the collateral is sold.

32

curtails the ways in which a debtor can fund its reorganization”

and thereby is at odds with § 1123(a)(5)(D). Maj. Op. at 24.

Taken to its logical conclusion, this argument would allow

debtors to disregard the statutory requirements of the plan

approval process so long as the motivation was to ensure

“adequate means” to implement a plan. This is a road too far.

In contrast, the reading of § 1123(a)(5)(D) I propose with

respect to plan sales is consistent with the text and the principles

of the Bankruptcy Code.

2. Section 363(k)

Section § 363 (and thus § 363(k)) applies to sales of

property outside the ordinary course of business, but § 363(k)

has been imported into § 1129(b)(2)(A)(ii). Notably, § 363 does

not specify a particular method of sale, but it does specify in

subsection (k) that a secured creditor has the right to credit bid

its debt, subject to the power of the court for cause to order

otherwise. Congress deems the ability of secured creditors to

credit bid so important that it applies as well to sales of

collateral via plans of reorganization that strip those liens.

To avoid undervaluation at a sale free of liens under

either § 363 or § 1129, a secured creditor has the option of

bidding its debt. See 7 Collier ¶ 1129.04[2][b][ii], at 1129-125.

Indeed, while many of the valuation mechanisms (such as

judicial valuation or market auction) may theoretically result in

a perfect valuation, Congress has provided the credit bid

mechanism as insurance for secured creditors to protect against

33

an undervaluation of assets sold.18 Secured creditors who

believe their collateral is being sold for too low a price may bid

it higher and use as credit the dollars they have already extended

(together with interest and other secured costs) to debtors. The

18

To support its interpretation, the majority notes that

§ 363(k) is the “most obvious example . . . under which the right

to credit bid is not absolute.” Maj. Op. at 39–40. My colleagues

argue that because “[a] court may deny a lender the right to

credit bid in the interest of any policy advanced in the Code”

through § 363(k)’s “for cause” exception, id. at 40 n.14, clause

(iii) must be available as well to circumvent the credit bid

requirements of clause (ii). This thought-track is twisted.

Whereas the default rule under clause (ii), as the majority

must concede, is presumptively to allow credit bidding “unless

the court for cause orders otherwise,” 11 U.S.C. § 363(k), the

majority’s approach allows the debtor to decide unilaterally to

deny credit bidding, with only a belated court inquiry at

confirmation to determine whether the denial of credit bidding

was “fair and equitable” to the secured lenders. The burden to

show cause that Congress carefully placed on the debtor through

clause (ii) has been shifted to the creditors through my

colleagues’ interpretation of clause (iii). See Maj. Op. at 41

(“[A] lender can still object to plan confirmation on a variety of

bases, including that the absence of a credit bid did not provide

it with the ‘indubitable equivalent’ of its collateral.”). To be

sure, the “fair and equitable” test at confirmation will be

formidable, but the majority implicitly presumes the propriety

of denying credit bidding instead of presuming the right to credit

bid.

34

benefit to debtors is that every additional dollar of value realized

by sale of the collateral is one less dollar that needs to come out

of the rest of the bankruptcy estate. This effect is evidence of

Congress’s intent to protect secured creditors and maximize

recovery at any sale free of liens, under the plan or under § 363,

through § 363(k)’s credit bidding requirement. It also supports

the reading of exclusivity for clause (ii).

3. Section 1111(b)

Section 1111(b)19 is another path by which secured

19

Section 1111(b) reads as follows:

(1)

(A) A claim secured by a lien on property

of the estate shall be allowed or disallowed

under section 502 of this title the same as

if the holder of such claim had recourse

against the debtor on account of such

claim, whether or not such holder has such

recourse, unless—

(i) the class of which such claim is

a part elects, by at least two-thirds

in amount and more than half in

number of allowed claims of such

class, application of paragraph (2)

of this subsection; or

35

creditors may protect themselves, this time from undervaluation

of the collateral securing their claims when the collateral is not

sold. Its protections have two facets. First, it allows a non-

(ii) such holder does not have such

recourse and such property is sold

under section 363 of this title or is

to be sold under the plan.

(B) A class of claims may not elect

application of paragraph (2) of this

subsection if—

(i) the interest on account of such

claims of the holders of such claims

in such property is of

inconsequential value; or

(ii) the holder of a claim of such

class has recourse against the

debtor on account of such claim

and such property is sold under

section 363 of this title or is to be

sold under the plan.

(2) If such an election is made, then

notwithstanding section 506 (a) of this

title, such claim is a secured claim to the

extent that such claim is allowed.

11 U.S.C. § 1111(b).

36

recourse secured creditor to be treated as a creditor with

recourse against the debtor for any debt deficiency that exists

because the collateral is worth less than the debt it secures. 11

U.S.C. § 1111(b)(1)(A); see also 7 Collier ¶ 1111.03[1][a][ii][B]

at 1111-16 to -17. Second, it allows a secured creditor to forgo

that deficiency claim and instead elect to have its claim treated

as if it were fully secured. 11 U.S.C. § 1111(b)(2); see also 7

Collier ¶ 1111.03[2][a] at 1111-22. Like the credit bidding

provided for in § 363(k), this election provision helps to

minimize the deficiency claims that can be asserted against the

rest of the bankruptcy estate and other unencumbered assets,

maximizing recovery for all creditors.

A § 1111(b) election is not available to a secured

creditor, however, if it is a recourse creditor and the property

securing the lien is to be sold “under section 363 of [the Code]

or . . . under the plan,” 11 U.S.C. § 1111(b)(1)(B)(ii). Thus,

while not directly referencing § 1129(b)(2)(A) in the text of the

former provision, it does make direct reference to the sale of

property under a plan, an act specifically contemplated by

§ 1129(b)(2)(A). Sections § 1129(b)(2)(A)(ii) and 1111(b) are

thus best understood as alternative protections for the secured

creditor: one to apply when its collateral is sold free and clear of

liens, and the other to apply when its collateral is treated other

than as a sale.20

20

This is not to say that the two clauses cover all scenarios.

Though not in play here, when collateral is sold subject to the

37

As the two protections are opposite sides of the same

coin, both focused on protecting the secured creditor’s interest

in property ordinarily protected under nonbankruptcy law from

being undervalued, this suggests that Congress intended to

channel all plan sales free of liens through § 1129(b)(2)(A)(ii).

See Klee, supra, at 153 n.127 (“The collateral will be sold under

. . . § 363(k) or under the plan. In either event the recourse

lender has a right to bid at the sale [free of liens] and to offset

his full allowed claim against the purchase price.”); see also

Brubaker, supra, at 11 (“Thus the protection against being

cashed out at an unfairly low valuation that the § 1111(b)(2)

election provides is, in the event of a sale of the collateral [free

of liens], provided instead by the right to credit bid at the sale.”).

If plan sales free of liens were permitted outside of clause (ii),

the secured creditor would not only lose the undervaluation

protection afforded in non-plan-sale situations, but it would lose

the only undervaluation protection Congress provided and

considered in the sale-free-of-liens scenario.

original lien, § 1129(b)(2)(A)(ii) does not apply because the sale

is not free and clear of all liens, while § 1111(b) does not apply

because the collateral nonetheless is sold. Because this scenario

falls squarely under § 1129(b)(2)(A)(i), a clause not implicated

in this case, and its associated protections, I do not address it

here. Likewise, when collateral is sold subject to a replacement

lien, § 1129(b)(2)(A)(ii) does not apply, but that scenario falls

under § 1129(b)(2)(A)(iii) and the “indubitable equivalent”

language.

38

* * * * *

Considering § 1129(b)(2)(A) in conjunction with

§§ 363(k), 1111(b), and 1123(a)(5)(D), their text expresses the

overall policy of Congress with respect to secured creditors

whose collateral is to be sold free of liens. They are part of a

comprehensive arrangement enacted by Congress to avoid the

pitfalls of undervaluation, regardless of the mechanism chosen,

and thereby ensure that the rights of secured creditors are

protected while maximizing the value of the collateral to the

estate and minimizing deficiency claims against other

unencumbered assets. Taken as a whole, the Code supports the

reading that funnels all plan sales free of liens into clause (ii).

See Klee, supra, at 155 n.136 (“If the collateral is sold free and

clear of the lien, then . . . § 1129(b)(2)(A)(ii) is the controlling

provision.”). This is the only reading that “produces a

substantive effect . . . compatible with the rest of the law.”

Timbers, 484 U.S. at 371.

C. Legislative history, at the right time, gives keys

to comprehension of statutes.

Some may think that seeking to know laws by their

legislative history is simply shading their shadows, resulting in

ever more confusion. But when there is no consensus about

what a law means, we ignore at our peril statements of intent put

out by the branch of government that drafted that law. See

Blum, 465 U.S. at 896 (“Where, as here, resolution of a question

of federal law turns on a statute and the intention of Congress,

39

we look first to the statutory language and then to the legislative

history if the statutory language is unclear.”); In re Mehta, 310

F.3d 308, 311 (3d Cir. 2002) (same). I thus turn to legislative

history.

Section 1129(b) was new to bankruptcy law when the

Bankruptcy Code was enacted in 1978. See 124 Cong. Rec.

31,795, 32,406 (1978) (statement of Rep. Edwards)21 reprinted

in 1978 U.S.C.C.A.N. 6436, 6474; see also Klee, supra, at 143

& n.82 (“[T]he test for secured claims [under § 1129(b)(2)(A)]

is completely novel, affording protection for classes of secured

claims that is not provided under present law.”); see also Ron

Pair, 489 U.S. at 240 (“[Congress] intended ‘significant changes

from current law in . . . the treatment of secured creditors and

secured claims.’”) (citations omitted). This new section was not

enacted in isolation, but was instead enacted in conjunction with

section 1111(b):

Together with section 1111(b) . . . , this section

21

In the specific case of the Bankruptcy Code, the Supreme

Court “ha[s] treated [Rep. Edwards’s] floor statements on the

Bankruptcy Reform Act of 1978 as persuasive evidence of

congressional intent,” Begier v. IRS, 496 U.S. 53, 64 n.5 (1990),

and most cases interpreting § 1129(b)(2)(A) have referred to

those statements, as has Collier. See, e.g., In re SunCruz

Casinos, LLC, 298 B.R. at 839; In re Kent Terminal Corp., 166

B.R. at 565; In re 222 Liberty Assocs., 108 B.R. 971, 977–78

(Bankr. E.D. Pa. 1990); 7 Collier ¶ 1129.04[1] n.1, at 1129-119.

40

[1129(b)] provides when a plan may be confirmed

notwithstanding the failure of an impaired class to

accept the plan under section 1129(a)(8). Before

discussing section 1129(b)[,] an understanding of

section 1111(b) is necessary.

124 Cong. Rec. at 32,406. Accordingly, it is necessary to read

§ 1129(b)(2)(A) not in isolation, but (as noted above) as a

complement to § 1111(b). The latter was drafted with

§ 1129(b)’s operation in mind: “Sale of property under section

363 or under the plan is excluded from treatment under section

1111(b) because of the secured party’s right to bid in the full

amount of his allowed claim at any sale of the collateral under

section 363(k) . . . .” Id. at 32,407 (emphases added). Those

who drafted the Bankruptcy Code tell us straight out that

subsection 1129(b)’s operation contemplates credit bidding for

sales “under the plan.”

Not only was § 1129(b) a new provision, it signaled a

change from prior practice. The prior Bankruptcy Act only

required “adequate protection”—such as court determination of

fair market value of collateral after its appraisal and payment in

cash of the appraised amount—to confirm a plan over the

dissent of a secured creditor. See Klee, supra, at 143 & n.83

(citing to numerous provisions of the Bankruptcy Act). Instead

of the court-determined standard of the prior Bankruptcy Act,

the Bankruptcy Code created stronger creditor safeguards and

protections in § 1129(b)(2)(A). Part of this protection was the

ability of secured creditors to credit bid at any sale of collateral

41

free of liens.

In this context, it would be anomalous for Congress to

draft a specific provision, clause (ii), providing protections

above and beyond those given to secured creditors under the

prior Bankruptcy Act, only to allow clause (iii) to be used to

circumvent those protections and return to the precise

mechanism used prior to the Code. We have “been admonished

not to ‘read the Bankruptcy Code to erode past bankruptcy

practice absent a clear indication that Congress intended such a

departure,’” In re Montgomery Ward Holding Corp., 268 F.3d

205, 211 (3d Cir. 2001) (citation omitted). I thus also do not

presume that Congress enacted a nullity when it changed prior

practice by enacting a statutory provision.

The legislative history provides examples of the types of

situations in which clauses (ii) and (iii) would apply. Notably,

clause (ii) was termed “self-explanatory.” 124 Cong. Rec. at

32,407 (emphasis added). It allows confirmation of a plan when

the “plan proposes to sell the property free and clear of the

secured party’s lien.” Id. (emphasis added).

The legislative history also provides two examples where

a court could confirm under clause (iii)—“[a]bandonment of the

collateral to the creditor” and “a lien on similar collateral.” Id.

While it notes that an immediate cash payment less than the

secured claim would not satisfy the requirement, id., presumably

an immediate cash payment equal to the secured claim would.

What it does not say is that a sale of collateral free and clear of

42

liens can be accomplished through clause (iii); indeed, the only

example mentioned of sales free and clear of liens is through

clause (ii).

In enacting the Code to provide enhanced protections to

secured creditors, Congress only contemplated sales through the

“self-explanatory” procedures of clause (ii), not clause (iii), as

the latter was intended for situations of abandonment or

substitute collateral. Thus, I believe it is inconsistent with the

entirety of § 1129(b)(2)(A) to allow plan sales free of liens

through clause (iii).

IV. The Consequences of Applying Clause (iii) to Plan

Sales Free of Liens Are Contrary to the Settled

Expectations of Debtors and Lenders Bargaining in

the Shadow of the Bankruptcy Code.

If the debtors here prevail, a direct consequence is that

debtors generally would pursue confirmation under clause (ii)

only if they somehow concluded that providing a right to credit

bid as required by that clause would be more advantageous to

them than denying that right. This is illogical when one

considers that credit bidding is a form of protection for the

secured creditor, not the debtor. In our case, the secured lenders

are owed over $300 million secured by substantially all of the

debtors’ assets. Instead of allowing the lenders their

presumptive right to credit bid, debtors wish to confirm a plan

that sells the collateral without the procedural safeguard against

undervaluation contemplated by the Code’s drafters. Any

43

undervaluation of the collateral does not benefit the secured

lenders here, as they only receive the sale proceeds plus a

building encumbered by a two-year, rent-free lease (chutzpah to

the core). It does not even benefit the unsecured creditors, as

their recovery is independent of the sale price. The only party

that stands to benefit from any undervaluation is the purchaser

of the assets, ostensibly the Stalking Horse Bidder with

substantial insider and equity ties.

Moreover, this is not the “loan-to-own” scenario that was

mentioned by debtors’ counsel at oral argument. See Oral Arg.

Tr. 42:10–19. In that situation, the “lender’s primary incentive

is acquiring the debtor’s assets as cheaply as possible rather than

maximizing the recovery on its secured loan.” Brubaker, supra,

at 12. By contrast, in our case the secured lenders have already

loaned hundreds of millions of dollars in an arms-length

transaction, and there is no plausible assertion that this was an

attempt to “acquir[e] the debtor’s assets as cheaply as possible.”

Id. The Stalking Horse Bidder’s bid is only expected to yield

gross proceeds to the estate of approximately $41 million. In re

Philadelphia Newspapers, LLC, 418 B.R. 548, 554 (E.D. Pa.

2009) (“The Plan contemplates that the Stalking Horse Bidder

will pay a cash purchase price of $30 million, plus a

combination of payment of certain expenses and assumption of

liabilities that will yield gross proceeds to the Debtors’ estates

of approximately $41 million.”). This is small fraction of the

secured lenders’ implied loan-to-own purchase price ($295

million initial loan plus interest and costs). A winning credit bid

is hardly an acquisition “on the cheap.”

44

If anything, this presents the opposite situation: the

Stalking Horse Bidder appears to be attempting to acquire the

debtor’s assets as cheaply as possible by “seizing upon

coordination difficulties inherent in the administration of a large

syndicated loan that might actually prevent the multiple secured

lenders from writing a check to themselves, in which case

someone else is trying to acquire the debtor’s assets on the

cheap by preventing the secured lenders from credit bidding.”

Brubaker, supra, at 12. Such a result would undermine the

Bankruptcy Code by skewing the incentives of the debtor to

maximize benefits for insiders, not creditors.

Secured creditors “have lawfully bargained prepetition

for unequal treatment” by obtaining a property interest in

debtors’ property. In re Owens Corning, 419 F.3d 195, 216 (3d

Cir. 2005). However unfair the debtors believe the credit bid

right to be, it is an important consequence of this lawful

bargaining under the Bankruptcy Code.

The secured lenders relied on their ability to credit bid in

extending credit to the debtors, reducing their costs and pricing

in accordance with their bargain. “[S]ecured credit lowers the

costs of lending transactions not only by increasing the strength

of the lender’s legal right to force the borrower to pay, but also

. . . by limiting the borrower’s ability to engage in conduct that

lessens the likelihood of repayment.” Ronald J. Mann,

Explaining the Pattern of Secured Credit, 110 Harv. L. Rev.

625, 683 (1997). As discussed above, Congress has determined

that credit bidding is necessary to ensure proper valuation of the

45

collateral at a sale free of liens. Denying secured creditors the

right to credit bid in those cases allows debtors to lessen the

likelihood of repayment of the full value of the collateral.

Instead of giving secured creditors the benefit of the

bargain struck with debtors, the debtors’ proposed reading

uproots settled expectations of secured lending. Whereas a

secured creditor ordinarily would be assured of (1) retaining its

lien on collateral and a payment stream, (2) a sale of collateral

free of its liens with a corresponding right to credit bid, or (3)

equivalent substitute collateral or the ability to take abandoned

collateral, there is now a new possibility: a sale free of its liens

without a right to credit bid. Allowing this possibility (outside

of the bargained-for loan) forces future secured creditors to

adjust their pricing accordingly, potentially raising interest rates

or reducing credit availability to account for the possibility of a

sale without credit bidding. As noted, secured creditors are

deprived of some of the presumed benefits associated with

secured lending. The Bankruptcy Code does not intend this; it

preserves the bargains for treatment made under state law unless

a federal interest directs a different result. Butner, 440 U.S. at

55. I see no such interest here, and debtors have not advanced

any federal interest supporting the consequences of their

interpretation.

V. Conclusion

Section 1129(b)(2)(A) permits the cramdown of

objections by secured creditors to plans of reorganization when

46

to do so is “fair and equitable.” To be fair and equitable, the

Bankruptcy Code sets markers that must be met. One (clause

(ii)) is that sales of collateral free of secured creditors’ liens

come with a condition: those creditors have the right at the sale

to bid up to the full amount of the credit they extended (absent

cause to take away this right). The text gives this specific right

when collateral is sold free of liens, and the question for us is

whether it can be disregarded by a general provision, nowhere

mentioning sales of collateral, that allows secured creditors’

plan objections to be overcome when the plan provides those

creditors the “indubitable equivalent” of their claims. I believe

the answer is “No.”

Allowing a plan sale free of liens under the general

provision (clause (iii)) is not implausible were we to make the

“or” between clause (ii) and clause (iii) a textual show-stopper.

But that would make us the standard-bearers of a purism that

here would ignore an equally, I suggest more, plausible reading

that plan sales of collateral are confined specifically either to

clause (i) (sales subject to liens) or clause (ii) (sales free of

liens).

Two plausible readings point me to those signposts a

court can fix on to wend its way to what Congress intended.

Each signpost—be it a canon of construction, the design and

function of the Bankruptcy Code, every signal of intent

contained in the legislative record, and commentary made by

those with the power of the pencil who were present at the

Code’s creation—steers me to a reading that clause (ii) covers

47

exclusively plan sales of assets free of liens. (In effect, a single

“or” becomes the bell, book, and candle that excommunicates

congressional intent from the Bankruptcy Code.) Moreover, the

consequences of a contrary reading include upsetting three

decades of secured creditors’ expectations, thus increasing the

cost of credit.

I conclude that Congress intended to protect secured

creditors at a plan sale of collateral free of liens by providing

them a means to control undervaluations of secured assets.

Accordingly, I would hold that § 1129(b)(2)(A)(ii) is

exclusively applicable to the proposed plan sale in this case, and

with it comes a presumptive right to credit bid by the secured

lenders. The debtors of course would remain free to argue in the

Bankruptcy Court that there is cause to preclude credit bidding

under § 363(k) or propose an alternative plan under clause (i) or

(iii) of § 1129(b)(2)(A) that does not involve the sale of property

free of liens.22

22

In any event, I do not take the majority opinion to preclude

the Bankruptcy Court from finding, as a factual matter, that the

debtors’ plan is a thinly veiled way for insiders to retain control

of an insolvent company minus the debt burden the insiders

incurred in the first place. Nor do I take the majority opinion to

preclude the Bankruptcy Court from concluding, at the

confirmation hearing, that the plan (and resulting proposed sale

of assets free of liens and without credit bidding) does not meet

the overarching “fair and equitable” requirement.

48

Because I believe the Bankruptcy Code requires all

cramdown plan sales free of liens to be channeled through

§ 1129(b)(2)(A)(ii), I respectfully dissent.

49