In the ongoing saga of the RadLAX bankruptcy case I've posted about credit bidding by secured lenders generally here, the three options bankruptcy courts have to confirm a plan of reorganization over a lender's objection here, and a brief summary of two conflicting decisions on whether a court can confirm a plan to sell the debtor's assets while depriving the lender of the power to credit bid here.
I've already briefly mentioned the countervailing claims from the Bankruptcy Code itself. For the details of the competing claims and the best argument that the Bankruptcy Code requires that lenders be allowed to credit bid see this piece by Charles Tabb. For myself, I want to suggest an argument that Tabb rejects: the Constitution requires that lenders be allowed to credit bid.
Along with the other signers of the "law professors brief" (read it here), the constitutional argument draws on the Fifth Amendment prohibition of taking private property for private use as applied by the Supreme Court in the Depression-era case of Louisville Joint Stock Bank v. Radford. The Court's decision two years later in Wright v. Vinton Branch of Mountain Trust Bank of Roanoke, Va reaffirmed this point when it upheld the constitutionality of a revised version of the law. Of course, nothing can be that easy because in 1940 the Court seems to have retreated from its regard for the lender's "property" in Wright v. Union Cent. Life Ins. Co. Frankly, the most troublesome language in this second Wright case was unnecessary; the Court could have reached its conclusion without it.
In any event, the constitutional foray is more interesting than dispositive. I doubt the Court will get to the constitutionality of eliminating the power to credit bid because the statutory language is sufficiently clear. But, to say the least, one never knows.
I've already briefly mentioned the countervailing claims from the Bankruptcy Code itself. For the details of the competing claims and the best argument that the Bankruptcy Code requires that lenders be allowed to credit bid see this piece by Charles Tabb. For myself, I want to suggest an argument that Tabb rejects: the Constitution requires that lenders be allowed to credit bid.
Along with the other signers of the "law professors brief" (read it here), the constitutional argument draws on the Fifth Amendment prohibition of taking private property for private use as applied by the Supreme Court in the Depression-era case of Louisville Joint Stock Bank v. Radford. The Court's decision two years later in Wright v. Vinton Branch of Mountain Trust Bank of Roanoke, Va reaffirmed this point when it upheld the constitutionality of a revised version of the law. Of course, nothing can be that easy because in 1940 the Court seems to have retreated from its regard for the lender's "property" in Wright v. Union Cent. Life Ins. Co. Frankly, the most troublesome language in this second Wright case was unnecessary; the Court could have reached its conclusion without it.
In any event, the constitutional foray is more interesting than dispositive. I doubt the Court will get to the constitutionality of eliminating the power to credit bid because the statutory language is sufficiently clear. But, to say the least, one never knows.
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