Opposition Brief — Fighter Ltd. v. Teacher Insurance & Annuity Ass'n of America, 214 B.R. 561 (1997) (No. 97-546)

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" ty No. 97-546 |

OCT 29 1997 |

In The a |

Supreme Court of the United+States-

October Term, 1997

mmeeeeianentan Ee

FIGTER LIMITED,

Petitioner,

See ee ee

vs.

TEACHERS INSURANCE AND ANNUITY

ASSOCIATION OF AMERICA,

Respondent.

ananassae SL eReRdemnnonnee

ON PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

RESPONDENT’S OPPOSITION TO PETITION

FOR WRIT OF CERTIORARI

JAMES R. BIRNBERG*

ANDREW S. CLARE

LAWRENCE B. GUTCHO

G. JAMES STRENIO

LOEB & LOEB LLP

1000 Wilshire Boulevard

Suite 1800

Los Angeles, CA 90017-2475

(213) 688-3400

Counsel for Respondent

Teachers Insurance and Annuity

Association of America

* Counsel of Record

TABLE OF CONTENTS

Page

op Es re are re |

STATEMENT OF THE CASE ................. 2

ARGUMENTS FOR DENYING THE PETITION .... 5

A. The Ninth Circuit Court Of Appeals, In Figter,

Did Not Enter A Decision In Conflict With A

Decision Of Another Court Of Appeals ...... 5

B. The Ninth Circuit Court Of Appeals, In Figter,

Did Not Decide A Federal Question In A Way

That Conflicts With Applicable Decisions Of

Bee ee GE 56 bo bis eR a oe ee 5

5 The Ninth Circuit Court of Appeals’

interpretation of § 1126(e) does not

conflict with any applicable decision

of the Supreme Cowrtt ............. 5

> The Ninth Circuit Court of Appeals’

interpretation of § 1126(c) does not

conflict with any applicable decision

of the Supreme Court ......6...... 9

C. The Ninth Circuit Court Of Appeals, In Figter,

Did Not Decide An Important Question Of

Federal Law Which Has Not Been, But

Should Be, Settled By The Supreme Court... 10

ee Re ere er ee oe ee eee 12

TABLE OF AUTHORITIES

Page(s)

CASE

255 Park Plaza Associates Lid.

Partnership v. Connecticut General

Life Ins. Co. (In re 255 Park Plaza

Associates, Ltd. Partnership),

100 F.3d 1214 (6th Cir. 1996) ............. 8

Beezley v. ifornia Title Co. |

(In re Beezley), |

994 F.2d 1433 (9th Cir. 1992) ............ 10

Dewsnup v. Timm,

— ft ef: Pr rree rere Pere. 10

Figter Ltd. v. Teachers Insurance and

Annuity of Association of America

(in re Figter Ltd.),

118 F.3d 635 (9th Cir. 1997) ...... 1, 2, 5, 7-10

Goodman v. Lukens Steel Co.,

Ge We PD 6 as o's ovo 8 éebdesee ans 5

In re A.D.W., Inc.

90 B.R. 645 (Bankr. D. NJ. 1988) .......... 9

In re Allegheny Internatio Inc. |

118 B.R. 282 (Bankr. W.D. Pa. 1990) ........ 9

In re Applegate Property, Ltd.,

133 B.R. 827 (Bankr. W.D. Tex. 1991) .... 9, 11

_—__ —————

ill

In re Concord Square en

174 B.R. 71 (Bankr. S.D. Ohio 1994) ........ )

In re Gilbert,

104 B.R. 206 (Bankr. W.D. Mo. 1989) ....... )

In re Holly Knoll Partnership,

167 B.R. 381 (Bankr. E.D. Pa. 1994) ........ 9

In re Landau Boat Co.,

8 B.R. 432 (Bankr. W.D. Mo. 1981) ......... 9

In re Landing Associates, Ltd.,

157 B.R. 791 (Bankr. W.D. Tex. 1993) ....... 9

In re MacLeod Co..,

63 B.R. 654 (Bankr. S.D. Ohio 1986) ........ 9

In re Marin Tower Ctr.,

ae ae, we ere. Coe. 1992)... we 8

Insinger Machine Co. v. Federal Support

Co. (in re Federal Support Co.),

So ume er Cee. BOGS)... 2... ew ewe 8

Norwest Bank Worthington v. Ahlers,

RO ee 6, 11

Phoenix Mutual Life Ins. Co. v.

Greystone III Joint Venture

(in re Greystone III Joint Venture),

995 F.2d 1274 (Sth Cir. 1991) ............ 10

Pioneer Investment Services Co. v.

Brunswick Assoc. L.P.

Sr a EE kk oc te oe ea 8 ee 5-7

United States v. Ron Pair Enterprises,

ee Se Ge ED 2b vg OK 66s ke whee ews 10

Young v. Higbee,

324 U.S. 204 (1945) .............4.. 5, 7, 8

STATUTES

Tet Ct 0) nes 1, 6, 9, 10

i GAME ON on ey cp calls GaN od Ghee 1, 5-8

5 ERC. OC UISIUOI ... oo soe eccak cease 4

EB RR I oe ess os oo oa ees 4

TO THE HONORABLE SUPREME COURT:

Respondent, Teachers Insurance and Annuity

Association of America ("Teachers"), submits this brief in

opposition to the petition for a writ of certiorari submitted by

Petitioner, Figter Limited (the "Debtor").

ODUCTION

The Ninth Circuit Court of Appeal’s decision, Figter

Ltd. v. Teachers Insurance and Annuity of Association of

America (In_re Figter Ltd.), 118 F.3d 635 (9th Cir. 1997),

attached as Appendix A to the petition, involves the inter-

pretation of §§ 1126(c) and 1126(e) of the Bankruptcy Code

and the application of those provisions to the situation where

an oversecured creditor (Teachers), who is a pre-existing

creditor and not a competitor of the debtor nor a plan

proponent, purchases unsecured claims by offering to pur-

chase all non-insider unsecured claims for one-hundred cents

on the dollar with the intent of blocking confirmation of the

debtor’s plan which it legitimately believes is not in its best

interests.

The Ninth Circuit Court of Appeals concluded that the

bankruptcy court did not err in either its factual or legal

determinations that Teachers’ acquisition of the unsecured

claims was made in "good faith" within the meaning of

§ 1126(e) and that Teachers should be entitled, pursuant to

§ 1126(c), to one vote per purchased claim.

Because Figter does not conflict with a decision of

another court of appeals, does not decide a federal question

in a way that conflicts with applicable decisions of this

Court, and does not decide an important question of federal

law which has not been, but should be, settled by this Court,

this Court should deny the Debtor’s petition for writ of

certiorari.

STA NT OF ASE

The Debtor filed a voluntary petition on May 27,

1993. (Petitioner’s Appendix ("App.") C, 3.) The Debtor’s

primary asset is a 198-unit multi-family residential apartment

complex (Skyline Terrace) located in downtown Los Angeles

(the "Property"). (App. C, 5.) Teachers is a pre-existing

creditor by virtue of a $15.6 million promissory note,

executed by the Debtor in favor of Teachers on April 29,

1989, and secured by a first trust deed lien on the Property.

(App. C, 5.)

The Debtor’s plan of reorganization, filed on

December 23, 1993, (the "Plan") proposes to convert the

Skyline Terrace into condominiums, with a sales program of

approximately three years, and with Teachers to release

portions of its lien as individual condominiums are sold.

(App. C, 6.)

The Plan classifies Teachers’ secured claim in Class

2 and classifies the unsecured claims in Class 3. Class 2 and

Class 3 were the only impaired classes. (App. C, 6.)

During the period October 27, 1994 through October

31, 1994, Teachers offered to purchase all of the Class 3

unsecured claims for one-hundred cents on the dollar. (App.

C., 8, 19, and 20.) During this period, Teachers purchased

twenty-one of the thirty-six unsecured claims classified in

Class 3 at one-hundred cents on the dollar for a total of

$14,588.62. (App C, 8.) On or about November 23, 1994,

Teachers filed with the Clerk of the Bankruptcy Court

Notices of Transfer of Claim as required by Rule

300(1)(e)(2) of the Federal Rules of Bankruptcy Procedure.

(App. C, 8 and 20.) On or about December 14, 1994, the

Clerk of the Court served its Notice of Transfer of Claims on

Teachers, the transferors, and the Debtor. (App. C, 8.) No

objection was filed by any transferor within the twenty-day

period provided for in Rule 3001(e)(2). (Id.)

Teachers was not a plan proponent when it purchased

the claims. (App. C, 18, 20, and 22.) When, on August 24,

1994, the bankruptcy court determined that Teachers was

oversecured, Teachers, whose plan was premised on the

belief that Teachers’ claim was undersecured (App. C, 7 and

18), was no longer a competitor regarding the Debtor’s plan.

(App. C, 18.) The record is void of any effort by Teachers

subsequent to August 24, 1994 to propose its own amended

plan. (App. C, 8 and 18-19.) Thus, at the time Teachers

purchased the claims, its plan was no longer in competition

with the Plan. Accordingly, the Debtor’s assertion that "the

secured creditor was a plan proponent at the time it made the

purchases” (Petition, 13) is a misstatement of fact.

Debtor will be meres to meet the salbieienate of 1 US.C.

§ 1129(a)(10), i.e., the existence of an impaired consenting

class of claims, and, therefore, the Debtor will be unable to

cramdown Teachers’ secured claim under § 1129(b). (App.

by sa: eineiecdt abdaceetils (App. C 16 and 18): (1)

the record is void of any evidence of any pure malice or

blackmail (App. C, 18); (2) the record does not support a

finding that Teachers’ acquisition of the claims was part of

a scheme to destroy the Debtor since Teachers is not a com-

petitor of the Debtor (Id.); and (3) the inability of the Debtor

to confirm a plan will not eliminate pending state court

lender liability action brought by the Debtor against Teachers,

which action is based on the Debtor’s allegations that

Teachers wrongfully refused to enter into a restructuring of

the Debtor’s obligations to Teachers (App. C, 22).

Instead, Teachers was motivated by a genuine concern

to ti self int isti itor:

Teachers holds a legitimate belief that the Plan, if confirmed,

would expose it to significant risks not bargained for when

it made the loan to the Debtor and that, therefore, the

Debtor’s attempt to cramdown its secured claim is not in

Teachers’ best interests. (App. C, 16, 18, ,19, and 20.)

These factual findings, entered by the Bankruptcy

Court and affirmed by both the District Court and the Court

~~ =”

of Appeals, should not be unsettled by this Court. See

Goodman v. Lukens Steel Co., 482 U.S. 656, 665 (1987).

ARGUMENTS FOR DENYING THE PETITION

A. The Ninth Circuit Court Of Appeals, In Figter,

Did Not Enter A Decision In Conflict With A

Decision Of Another Court Of Appeals.

Figter does not conflict with a decision of another

court of appeals. The Debtor does not suggest otherwise.

B. The Ninth Circuit Court Of Appeals, In Figter,

Did Not Decide A Federal Question In A Way

That Conflicts With Applicable Decisions Of The

Supreme Court.

1. The Ninth Circuit Court of Appeals’ inter-

pretation of § 1126(e) does not conflict with

any applicable decision of the Supreme

Court.

Contrary to the Debtor’s assertions, Figter, in

interpreting "good faith" within the meaning of § 1126(e) to

include purchases of unsecured claims by an oversecured

creditor with the intent to block confirmation of a plan, does

not conflict with Pioneer Investment Services Co. v. Bruns-

k Assoc. L.P., 507 U.S. 380, 389 (1993) or Young v.

ra 324 U.S. 204, 210-11 (1945).

First, Pioneer Investments is not applicable. Pioneer

Investments does not hold, let alone state, that a court must

interpret language left undefined by Congress in the Bank-

ruptcy Code (e.g., "good faith" in § 1126(e)) in a manner that

insures that a debtor will successfully reorganize. Pioneer

Investments merely describes a bankruptcy court’s general

equitable powers:

bankruptcy courts are entrusted with broad

equitable powers to balance the interests of the

affected parties, guided by the overriding goal

of insuring the success of the reorganization.

507 U.S. at 389. As this Court makes clear in Norwest Bank

Worthington v. Ahlers, 485 U.S. 197, 207 (1988), a bank-

ruptcy court’s equitable powers can only be exercised within

the confines of the Bankruptcy Code and cannot be used to

interpret the Code with a debtor’s green glasses:

whatever equitable powers remain in the bank-

ruptcy courts must and can only be exercised

within the confines of the Bankruptcy

Code... . The Court of Appeals may well

have believed that [the Lender] or other

unsecured creditors would be better off if [the

debtors’] reorganization plan was confirmed.

But the determination is for the creditors to

make in the manner specified by the Code.

11 U.S.C. § 1126(c).

Because Figter involves the interpretation of the Bankruptcy

Code and not a bankruptcy court’s exercise of its equitable

powers, Pioneer Investments is not applicable.

Second, the Ninth Circuit Court of Appeals’ interpre-

tation of § 1126(e) does not conflict with Young. This

Court, in Young, in discussing § 203 of the Bankruptcy Act,

the predecessor to § 1126(e), did not hold that a creditor’s

acquisition of claims to block confirmation of a plan is not

"good faith." Instead, this Court explained that this provision

was intended to apply to those

whose selfish purpose was to obstruct a fair

and feasible reorganization in the hope that

someone would pay them more than the

ratable equivalent of their proportionate part

of the bankrupt assets.

324 U.S. at 211 (emphasis added). This Court further

elucidated the legislative history of § 203 in footnote 10:

A year before the House Committee on the

Judiciary held its extensive hearings on the

Chandler Act a Circuit Court of Appeals held

that a creditor could not be denied the privi-

lege of voting on a reorganization plan under

Sec. 77B, although he bought the votes for the

purpose of preventing confirmation unless

certain demands of his should be met. Texas

Hotel ration v. Waco Development Co.

5 Cir., 87 F.2d 395. The hearings make clear

the purpose of the Committee to pass legis-

lation which would bar creditors from a vote

who were prompted by such a purpose. To

this end they adopted the ‘good faith’ pro-

visions of Sec. 203. Its purpose was to

prevent creditors from participating who ‘by

the use of obstructive tactics and hold-up

techniques exact for themselves undue advan-

tages from the other stockholders who are

cooperating.’ Bad faith was to be attributed to

claimants who opposed a plan for a time until

they were ‘bought off’; those who ‘refused to

vote in favor of a plan unless. . . given some

particular preferential advantage.’ Hearings

on Revision of the Bankruptcy Act before the

Committee on the Judiciary of the House of

Representatives, 75th Cong., Ist Sess. on H.R.

6439, Serial 9, pp. 180-182.

The Ninth Circuit Court of Appeals, in interpreting

§ 1126(e) to mean that a creditor’s purchases of claims are

made in "good faith" when the purchases are made with the

motivation of protecting the creditor’s economic interests as

a pre-existing creditor as opposed to an ulterior motive such

as blackmail, strike, or malice, is entirely consistent with

Young. Indeed, Figter consistently follows Young and the

line of cases which, with the guidance of Young, have inter-

preted § 1126(e). (App. A, 5-7) (following Young and the

line of cases interpreting § 1126(e) with the guidance of

Young: 255 Park Plaza Associates Ltd. Partnership v.

Connecticut General Life Ins. Co. (In_re 255 Park Plaza

Associates, Ltd. Partnership), 100 F.3d 1214, 1219 (6th Cir.

1996); Insinger Machine Co. v. Federal Support Co. (In re

Federal Support Co.), 859 F.2d 17, 19 (4th Cir. 1988); In re

Marin Tower Ctr., 142 B.R. 374, 378-79 (N.D. Cal. 1992):

In re Holly Knoll Partnership, 167 B.R. 381, 385-86 n. 4

(Bankr. E.D. Pa. 1994); In re Landing Associates, Ltd., 157

B.R. 791, 803 (Bankr. W.D. Tex. 1993); In re Applegate

Property, Ltd., 133 B.R. 827, 834 (Bankr. W.D. Tex. 1991):

In re Allegheny International, Inc., 118 B.R. 282, 288-89

(Bankr. W.D. Pa. 1990); In re Gilbert, 104 B.R. 206, 215-16

(Bankr. W.D. Mo. 1989); In re A.D.W.., Inc., 90 B.R. 645,

648 (Bankr. D. N.J. 1988); In re MacLeod Co., 63 B.R. 654,

655 (Bankr. S.D. Ohio 1986); In re Landau Boat Co., 8 B.R.

432, 433-34 (Bankr. W.D. Mo. 1981)).

2. The Ninth Circuit Court of Appeals’ inter-

pretation of § 1126(c) does not conflict with

any applicable decision of the Supreme

Court.

The Ninth Circuit Court of Appeals, in Figter, inter-

preted § 1126(c) to mean that a creditor is entitled to one

vote for each of its purchased claims, which interpretation is

supported by the two other decisions that have addressed this

issue: In re Concord Square Apartments, 174 B.R. 71, 74-75

(Bankr. S.D. Ohio 1994), and In re Gilbert, 104 B.R. at 211.

The Ninth Circuit Court of Appeals’ conclusion is based on

the plain language of § 1126(c) which states that "claims"

and not "creditors" are counted:

[a] class of claims has accepted a plan if such

plan has been accepted by creditors, other than

any entity designated under subsection (e) of

this section, that hold at least two-thirds in

amount and more than one-half in number of

the allowed claims of such class held by

creditors, other than any entity designated

under subsection (e) of this Section, that have

accepted or rejected such a plan. [Emphasis

added. } |

Because the language of § 1126(c) is not ambiguous,

and because, in any event, the old law to which the Debtor

refers is either inconsistent with the language of § 1126(c) or

not relevant to the issue of counting claims for the purpose

of accepting or rejecting a plan, Dewsnup v. Timm, 502 U.S.

410 (1992), is not applicable. The Ninth Circuit correctly so

reasoned. (App. A, 9-10.) Indeed, to do otherwise would

run afoul of this Court’s dictate in United States v. Ron Pair |

Enterprises, 489 U.S. 235, 241 (1989) that "judicial inquiry

is complete" when the words of a statute are unambiguous.

C. The Ninth Circuit Court Of Appeals, In Figter,

Did Not Decide An Important Question Of Federal

Law Which Has Not Been, But Should Be, Settled

By The Supreme Court.

The Bankruptcy Code represents Congress’ delicate |

balance of the rights of debtors and the nights of creditors, }

which balance this Court should not upset. See Beezley v. |

California Title Co. (In re Beezley), 994 F.2d 1433, 1439-40

(9th Cir. 1992) (O’Scannlain, J., concurring). A creditor’s |

ability to purchase claims, and the concomitant ability of a

creditor to sell its claim, further the creditor control principle

embodied by the Bankruptcy Code and recognized by this

Court. See Phoenix Mutual Life Ins. Co. v. Greystone III

rarer innate

Joint Venture (In re Greystone III Joint Venture), 995 F.2d

1274, 1283 (5th Cir. 1991) (citing Ahlers, 485 U.S. at 206).

Indeed, where, as here, the secured creditor offers to purchase

all of the claims of noninsider creditors for one-hundred cents

on the dollar, all noninsider creditors benefit. This situation

is not the "free-for-all" feared by the bankruptcy court in

Applegate where creditors will not be paid equally, where

fraud and corruption will be invited, and where a creditor

will purchase claims in exchange for forbearance in potential

violation of the federal securities laws. Instead, it affords

every noninsider creditor of the debtor the option of having

their claims paid in full.

Congress embued this creditor control principle in

§ 1126(e), which, as elucidated by the legislative history and

the relevant and unanimous case law, makes it clear that a

creditor, such as Teachers, acts in good faith when it pur-

chases claims to preclude confirmation of a plan when its

action is motivated by a desire to protect its economic

interests as a pre-existing creditor and not by an ulterior

purpose. Even though a creditor’s ability to vote claims that

it purchased often frustrates the efforts of a debtor, especially

a single asset real estate debtor, to successfully reorganize,

the Debtor’s concern is one that the Debtor should raise with

Congress and not this Court. If such purchases risk the loss

of a debtor’s equity through liquidation or foreclosure, the

solution may be found in the economics of the marketplace,

€.g., obtaining alternate financing, not in the judicial

rewriting of the Bankruptcy Code.

CONCLUSION

For the foregoing reasons, the petition for writ of

certiorari does not present a compelling reason for this Court

to grant certiorari. Respondent respectfully requests this

Court to deny the petition.

Dated: October 29, 1997

Respectfully submitted,