Radlax Gateway Hotel, LLC v. Amalgamated Bank

(Slip Opinion) OCTOBER TERM, 2011 1

Syllabus

NOTE: Where it is feasible, a syllabus (headnote) will be released, as is

being done in connection with this case, at the time the opinion is issued.

The syllabus constitutes no part of the opinion of the Court but has been

prepared by the Reporter of Decisions for the convenience of the reader.

See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.

SUPREME COURT OF THE UNITED STATES

Syllabus

RADLAX GATEWAY HOTEL, LLC, ET AL. v.

AMALGAMATED BANK

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE SEVENTH CIRCUIT

No. 11–166. Argued April 23, 2012—Decided May 29, 2012

To finance the purchase of a commercial property and associated reno-

vation and construction costs, petitioners (debtors) obtained a se-

cured loan from an investment fund, for which respondent (Bank)

serves as trustee. The debtors ultimately became insolvent, and

sought relief under Chapter 11 of the Bankruptcy Code. Pursuant

to 11 U. S. C. §1129(b)(2)(A), the debtors sought to confirm a

“cramdown” bankruptcy plan over the Bank’s objection. That plan

proposed selling substantially all of the debtors’ property at an auc-

tion, and using the sale proceeds to repay the Bank. Under the debt-

ors’ proposed auction procedures, the Bank would not be permitted to

bid for the property using the debt it is owed to offset the purchase

price, a practice known as “credit-bidding.” The Bankruptcy Court

denied the debtors’ request, concluding that the auction procedures

did not comply with §1129(b)(2)(A)’s requirements for cramdown

plans. The Seventh Circuit affirmed, holding that §1129(b)(2)(A)

does not permit debtors to sell an encumbered asset free and clear of

a lien without permitting the lienholder to credit-bid.

Held: The debtors may not obtain confirmation of a Chapter 11

cramdown plan that provides for the sale of collateral free and clear

of the Bank’s lien, but does not permit the Bank to credit-bid at the

sale. Pp. 3–10.

(a) A Chapter 11 plan proposed over the objection of a “class of se-

cured claims” must meet one of three requirements in order to be

deemed “fair and equitable,” and therefore confirmable. The secured

creditor may retain its lien on the property and receive deferred cash

payments, §1129(b)(2)(A)(i); the debtors may sell the property free

and clear of the lien, “subject to section 363(k)”—which permits the

2 RADLAX GATEWAY HOTEL, LLC v. AMALGAMATED BANK

Syllabus

creditor to credit-bid at the sale—and provide the creditor with a lien

on the sale proceeds, §1129(b)(2)(A)(ii); or the plan may provide the

secured creditor with the “indubitable equivalent” of its claim,

§1129(b)(2)(A)(iii).

Here, the debtors proposed to sell their property free and clear of

the Bank’s liens and repay the Bank with the sale proceeds, as con-

templated by clause (ii). Because the debtors’ auction procedures do

not permit the Bank to credit-bid, however, the proposed sale cannot

satisfy the requirements of clause (ii). The debtors claim their plan

can instead satisfy clause (iii) by providing the Bank with the “indu-

bitable equivalent” of its secured claim, in the form of cash generated

by the auction.

The debtors’ reading of §1129(b)(2)(A), under which clause (iii)

permits precisely what clause (ii) proscribes, is hyperliteral and con-

trary to common sense. “[I]t is a commonplace of statutory construc-

tion that the specific governs the general.” Morales v. Trans World

Airlines, Inc., 504 U. S. 374, 384. Here, where general and specific

authorizations exist side-by-side, the general/specific canon avoids

rendering superfluous a specific provision that is swallowed by the

general one. See D. Ginsberg & Sons, Inc. v. Popkin, 285 U. S. 204,

208. As applied to §1129(b)(2)(A), the canon provides that the “gen-

eral language” of clause (iii), “although broad enough to include it,

will not be held to apply to a matter specifically dealt with” in clause

(ii). 285 U. S., at 208. Although the canon can be overcome by other

textual indications of statutory meaning, the debtors point to none

here. Pp. 3–8.

(b) None of the debtors’ objections to this approach is valid. Pp. 8–

9.

651 F. 3d 642, affirmed.

SCALIA, J., delivered the opinion of the Court, in which all other

Members joined, except KENNEDY, J., who took no part in the decision of

the case.

Cite as: 566 U. S. ____ (2012) 1

Opinion of the Court

NOTICE: This opinion is subject to formal revision before publication in the

preliminary print of the United States Reports. Readers are requested to

notify the Reporter of Decisions, Supreme Court of the United States, Wash-

ington, D. C. 20543, of any typographical or other formal errors, in order

that corrections may be made before the preliminary print goes to press.

SUPREME COURT OF THE UNITED STATES

_________________

No. 11–166

_________________

RADLAX GATEWAY HOTEL, LLC, ET AL., PETITION-

ERS v. AMALGAMATED BANK

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF

APPEALS FOR THE SEVENTH CIRCUIT

[May 29, 2012]

JUSTICE SCALIA delivered the opinion of the Court.

We consider whether a Chapter 11 bankruptcy plan may

be confirmed over the objection of a secured creditor pur-

suant to 11 U. S. C. §1129(b)(2)(A) if the plan provides

for the sale of collateral free and clear of the creditor’s lien,

but does not permit the creditor to “credit-bid” at the sale.

I

In 2007, petitioners RadLAX Gateway Hotel, LLC, and

RadLAX Gateway Deck, LLC (hereinafter debtors), pur-

chased the Radisson Hotel at Los Angeles International

Airport, together with an adjacent lot on which the debtors

planned to build a parking structure. To finance the

purchase, the renovation of the hotel, and construction of

the parking structure, the debtors obtained a $142 million

loan from Longview Ultra Construction Loan Investment

Fund, for which respondent Amalgamated Bank (hereinaf-

ter creditor or Bank) serves as trustee. The lenders ob-

tained a blanket lien on all of the debtors’ assets to secure

the loan.

Completing the parking structure proved more expen-

sive than anticipated, and within two years the debtors

2 RADLAX GATEWAY HOTEL, LLC v. AMALGAMATED BANK

Opinion of the Court

had run out of funds and were forced to halt construction.

By August 2009, they owed more than $120 million on the

loan, with over $1 million in interest accruing every month

and no prospect for obtaining additional funds to complete

the project. Both debtors filed voluntary petitions for

relief under Chapter 11 of the Bankruptcy Code.

A Chapter 11 bankruptcy is implemented according to

a “plan,” typically proposed by the debtor, which divides

claims against the debtor into separate “classes” and

specifies the treatment each class will receive. See 11

U. S. C. §1123. Generally, a bankruptcy court may con-

firm a Chapter 11 plan only if each class of creditors af-

fected by the plan consents. See §1129(a)(8). Section

1129(b) creates an exception to that general rule, per-

mitting confirmation of nonconsensual plans—commonly

known as “cramdown” plans—if “the plan does not dis-

criminate 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.” Section 1129(b)(2)(A),

which we review in further depth below, establishes crite-

ria for determining whether a cramdown plan is “fair and

equitable” with respect to secured claims like the Bank’s.

In 2010, the RadLAX debtors submitted a Chapter 11

plan to the United States Bankruptcy Court for the

Northern District of Illinois. The plan proposed to dissolve

the debtors and to sell substantially all of their assets

pursuant to procedures set out in a contemporaneously

filed “Sale and Bid Procedures Motion.” Specifically, the

debtors sought to auction their assets to the highest bid-

der, with the initial bid submitted by a “stalking horse”—a

potential purchaser who was willing to make an advance

bid of $47.5 million.1 The sale proceeds would be used to

fund the plan, primarily by repaying the Bank. Of course

——————

1 In a later proposal, the stalking-horse bid increased to $55 million.

The precise amount of the bid is not relevant here.

Cite as: 566 U. S. ____ (2012) 3

Opinion of the Court

the Bank itself might wish to obtain the property if

the alternative would be receiving auction proceeds that

fall short of the property’s full value. Under the debtors’

proposed auction procedures, however, the Bank would

not be permitted to bid for the property using the debt it is

owed to offset the purchase price, a practice known as

“credit-bidding.” Instead, the Bank would be forced to bid

cash. Correctly anticipating that the Bank would object to

this arrangement, the debtors sought to confirm their plan

under the cramdown provisions of §1129(b)(2)(A).

The Bankruptcy Court denied the debtors’ Sale and Bid

Procedures Motion, concluding that the proposed auction

procedures did not comply with §1129(b)(2)(A)’s require-

ments for cramdown plans. In re River Road Hotel Part-

ners, LLC, Case No. 09 B 30029 (ND Ill., Oct. 5, 2010),

App. to Pet. for Cert. 40a. The Bankruptcy Court certified

an appeal directly to the United States Court of Appeals

for the Seventh Circuit. That court accepted the certifi-

cation and affirmed, holding that §1129(b)(2)(A) does not

permit debtors to sell an encumbered asset free and clear

of a lien without permitting the lienholder to credit-bid.

River Road Hotel Partners, LLC, et al. v. Amalgamated

Bank, 651 F. 3d 642 (2011). We granted certiorari. 565

U. S. ___ (2011).

II

A

A Chapter 11 plan confirmed over the objection of a

“class of secured claims” must meet one of three require-

ments in order to be deemed “fair and equitable” with

respect to the nonconsenting creditor’s claim. The plan

must provide:

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

liens securing such claims, whether the property sub-

ject to such liens is retained by the debtor or trans-

ferred to another entity, to the extent of the allowed

4 RADLAX GATEWAY HOTEL, LLC v. AMALGAMATED BANK

Opinion of the Court

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 ti-

tle, of any property that is subject to the liens secur-

ing 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 such holders of the

indubitable equivalent of such claims.” 11 U. S. C.

§1129(b)(2)(A).

Under clause (i), the secured creditor retains its lien on

the property and receives deferred cash payments. Under

clause (ii), the property is sold free and clear of the lien,

“subject to section 363(k),” and the creditor receives a lien

on the proceeds of the sale. Section 363(k), in turn, pro-

vides that “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”—i.e., the creditor may credit-bid at the sale, up

to the amount of its claim.2 Finally, under clause (iii), the

plan provides the secured creditor with the “indubitable

equivalent” of its claim.

——————

2 The

ability to credit-bid helps to protect a creditor against the risk

that its collateral will be sold at a depressed price. It enables the

creditor to purchase the collateral for what it considers the fair market

price (up to the amount of its security interest) without committing

additional cash to protect the loan. That right is particularly important

for the Federal Government, which is frequently a secured creditor in

bankruptcy and which often lacks appropriations authority to throw

good money after bad in a cash-only bankruptcy auction.

Cite as: 566 U. S. ____ (2012) 5

Opinion of the Court

The debtors in this case have proposed to sell their

property free and clear of the Bank’s liens, and to repay

the Bank using the sale proceeds—precisely, it would

seem, the disposition contemplated by clause (ii). Yet

since the debtors’ proposed auction procedures do not

permit the Bank to credit-bid, the proposed sale cannot

satisfy the requirements of clause (ii).3 Recognizing this

problem, the debtors instead seek plan confirmation pur-

suant to clause (iii), which—unlike clause (ii)—does not

expressly foreclose the possibility of a sale without credit-

bidding. According to the debtors, their plan can satisfy

clause (iii) by ultimately providing the Bank with the

“indubitable equivalent” of its secured claim, in the form of

cash generated by the auction.

We find the debtors’ reading of §1129(b)(2)(A)—under

which clause (iii) permits precisely what clause (ii) pro-

scribes—to be hyperliteral and contrary to common sense.

A well established canon of statutory interpretation suc-

cinctly captures the problem: “[I]t is a commonplace of

statutory construction that the specific governs the gen-

eral.” Morales v. Trans World Airlines, Inc., 504 U. S.

374, 384 (1992). That is particularly true where, as in

§1129(b)(2)(A), “Congress has enacted a comprehensive

scheme and has deliberately targeted specific problems

with specific solutions.” Varity Corp. v. Howe, 516 U. S.

489, 519 (1996) (THOMAS, J., dissenting); see also HCSC-

Laundry v. United States, 450 U. S. 1, 6 (1981) (per

curiam) (the specific governs the general “particularly

when the two are interrelated and closely positioned,

both in fact being parts of [the same statutory scheme]”).

The general/specific canon is perhaps most frequently

——————

3 Title 11 U. S. C. §363(k)—and by extension clause (ii)—provides an

exception to the credit-bidding requirement if “the court for cause

orders otherwise.” The Bankruptcy Court found that there was no

“cause” to deny credit-bidding in this case, and the debtors have not

appealed that disposition.

6 RADLAX GATEWAY HOTEL, LLC v. AMALGAMATED BANK

Opinion of the Court

applied to statutes in which a general permission or pro-

hibition is contradicted by a specific prohibition or permis-

sion. To eliminate the contradiction, the specific provision

is construed as an exception to the general one. See, e.g.,

Morton v. Mancari, 417 U. S. 535, 550–551 (1974). But

the canon has full application as well to statutes such as

the one here, in which a general authorization and a more

limited, specific authorization exist side-by-side. There

the canon avoids not contradiction but the superfluity of

a specific provision that is swallowed by the general one,

“violat[ing] the cardinal rule that, if possible, effect shall

be given to every clause and part of a statute.” D. Gins-

berg & Sons, Inc. v. Popkin, 285 U. S. 204, 208 (1932).

The terms of the specific authorization must be complied

with. For example, in the last cited case a provision of the

Bankruptcy Act prescribed in great detail the procedures

governing the arrest and detention of bankrupts about

to leave the district in order to avoid examination. The

Court held that those prescriptions could not be avoided

by relying upon a general provision of the Act authoriz-

ing bankruptcy courts to “ ‘make such orders, issue such

process, and enter such judgments in addition to those spe-

cifically provided for as may be necessary for the enforce-

ment of the provisions of [the] Act.’ ” Id., at 206 (quoting

Bankruptcy Act of 1898, §2(15), 30 Stat. 546). The Court

said that “[g]eneral 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.” 285 U. S., at 208. We recently

quoted that language approvingly in Bloate v. United

States, 559 U. S. ___, ___ (2010) (slip op., at 10). Or as we

said in a much earlier case:

“It is an old and familiar rule that, where there is, in

the same statute, a particular enactment, and also a

general one, which, in its most comprehensive sense,

Cite as: 566 U. S. ____ (2012) 7

Opinion of the Court

would include what is embraced in the former, the

particular enactment must be operative, and the gen-

eral enactment must be taken to affect only such cases

within its general language as are not within the pro-

visions of the particular enactment. This rule applies

wherever an act contains general provisions and also

special ones upon a subject, which, standing alone, the

general provisions would include.” United States v.

Chase, 135 U. S. 255, 260 (1890) (citations and inter-

nal quotation marks omitted).

Here, clause (ii) is a detailed provision that spells out

the requirements for selling collateral free of liens, while

clause (iii) is a broadly worded provision that says nothing

about such a sale. The general/specific canon explains

that the “general language” of clause (iii), “although broad

enough to include it, will not be held to apply to a matter

specifically dealt with” in clause (ii). D. Ginsberg & Sons,

Inc., supra, at 208.

Of course the general/specific canon is not an absolute

rule, but is merely a strong indication of statutory mean-

ing that can be overcome by textual indications that point

in the other direction. The debtors point to no such indi-

cation here. One can conceive of a statutory scheme in

which the specific provision embraced within a general

one is not superfluous, because it creates a so-called safe

harbor. The debtors effectively contend that that is the

case here—clause (iii) (“indubitable equivalent”) being the

general rule, and clauses (i) and (ii) setting forth proce-

dures that will always, ipso facto, establish an “indubita-

ble equivalent,” with no need for judicial evaluation. But

the structure here would be a surpassingly strange man-

ner of accomplishing that result—which would normally

be achieved by setting forth the “indubitable equivalent”

rule first (rather than last), and establishing the two safe

harbors as provisos to that rule. The structure here sug-

8 RADLAX GATEWAY HOTEL, LLC v. AMALGAMATED BANK

Opinion of the Court

gests, to the contrary, that (i) is the rule for plans under

which the creditor’s lien remains on the property, (ii) is

the rule for plans under which the property is sold free

and clear of the creditor’s lien, and (iii) is a residual provi-

sion covering dispositions under all other plans—for ex-

ample, one under which the creditor receives the property

itself, the “indubitable equivalent” of its secured claim.

Thus, debtors may not sell their property free of liens

under §1129(b)(2)(A) without allowing lienholders to

credit-bid, as required by clause (ii).

B

None of the debtors’ objections to this approach is valid.

The debtors’ principal textual argument is that

§1129(b)(2)(A) “unambiguously provides three distinct

options for confirming a Chapter 11 plan over the objec-

tion of a secured creditor.” Brief for Petitioners 15 (capi-

talization and bold typeface removed). With that much we

agree; the three clauses of §1129(b)(2)(A) are connected by

the disjunctive “or.” The debtors contend that our inter-

pretation of §1129(b)(2)(A) “transforms ‘or’ into ‘and.’ ”

Reply Brief for Petitioners 3. But that is not so. The

question here is not whether debtors must comply with

more than one clause, but rather which one of the three

they must satisfy. Debtors seeking to sell their property

free of liens under §1129(b)(2)(A) must satisfy the re-

quirements of clause (ii), not the requirements of both

clauses (ii) and (iii).

The debtors make several arguments against applying

the general/specific canon. They contend that clause (ii)

is no more specific than clause (iii), because the former

provides a procedural protection to secured creditors

(credit-bidding) while the latter provides a substantive

protection (indubitable equivalence). As a result, they say,

clause (ii) is not “a limiting subset” of clause (iii), which

(according to their view) application of the general/specific

Cite as: 566 U. S. ____ (2012) 9

Opinion of the Court

canon requires. Brief for Petitioners 30–31; Reply Brief

for Petitioners 5–6. To begin with, we know of no authori-

ty for the proposition that the canon is confined to situa-

tions in which the entirety of the specific provision is a

“subset” of the general one. When the conduct at issue

falls within the scope of both provisions, the specific pre-

sumptively governs, whether or not the specific provision

also applies to some conduct that falls outside the general.

In any case, we think clause (ii) is entirely a subset.

Clause (iii) applies to all cramdown plans, which include

all of the plans within the more narrow category described

in clause (ii).4 That its requirements are “substantive”

whereas clause (ii)’s are “procedural” is quite beside the

point. What counts for application of the general/specific

canon is not the nature of the provisions’ prescriptions but

their scope.

Finally, the debtors contend that the Court of Appeals

conflated approval of bid procedures with plan confirma-

tion. Brief for Petitioners 39. They claim the right to

pursue their auction now, leaving it for the Bankruptcy

Judge to determine, at the confirmation stage, whether

the resulting plan (funded by auction proceeds) provides

the Bank with the “indubitable equivalent” of its secured

claim. Under our interpretation of §1129(b)(2)(A), how-

ever, that approach is simply a nonstarter. As a matter of

law, no bid procedures like the ones proposed here could

satisfy the requirements of §1129(b)(2)(A), and the distinc-

tion between approval of bid procedures and plan confir-

mation is therefore irrelevant.

——————

4 We are speaking here about whether clause (ii) is a subset for pur-

poses of determining whether the canon applies. As we have described

earlier, after applying the canon—ex post, so to speak—it ceases to be a

subset, governing a situation to which clause (iii) will no longer be

deemed applicable.

10 RADLAX GATEWAY HOTEL, LLC v. AMALGAMATED BANK

Opinion of the Court

III

The parties debate at some length the purposes of the

Bankruptcy Code, pre-Code practices, and the merits of

credit-bidding. To varying extents, some of those debates

also occupied the attention of the Courts of Appeals that

considered the question presented here. See, e.g., In re

Philadelphia Newspapers, LLC, 599 F. 3d 298, 314–317

(CA3 2010); id., at 331–337 (Ambro, J., dissenting). But

nothing in the generalized statutory purpose of protecting

secured creditors can overcome the specific manner of that

protection which the text of §1129(b)(2)(A) contains. As

for pre-Code practices, they can be relevant to the inter-

pretation of an ambiguous text, but we find no textual

ambiguity here. And the pros and cons of credit-bidding

are for the consideration of Congress, not the courts.

The Bankruptcy Code standardizes an expansive (and

sometimes unruly) area of law, and it is our obligation to

interpret the Code clearly and predictably using well

established principles of statutory construction. See

United States v. Ron Pair Enterprises, Inc., 489 U. S. 235,

240–241 (1989). Under that approach, this is an easy case.

Because the RadLAX debtors may not obtain confirmation

of a Chapter 11 cramdown plan that provides for the sale

of collateral free and clear of the Bank’s lien, but does not

permit the Bank to credit-bid at the sale, we affirm the

judgment of the Court of Appeals.

It is so ordered.

JUSTICE KENNEDY took no part in the decision of this

case.