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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1997

## Text

| 7A}
" 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

il

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

iV

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

l

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.

2

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.)

3

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.
Ca

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

~~ =”

5

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).

6

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).

7

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-

8

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

Se

9

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

10

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

11

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.

12

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,

JAMES R. BIRNBERG*
ANDREW S. CLARE
LAWRENCE B. GUTCHO

G. JAMES STRENIO

LOEB & LOEB LLP

1000 Wilshire Blvd., Suite 1800
Los Angeles, CA 90017-2475
(213) 688-3400

Counsel for Respondent
Teachers Insurance and Annuity
Association of America

* Counsel of Record

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386013_1487%3A2. Public record. Not legal advice.