Today will begin a series of posts in advance of next Monday's oral arguments before the SCOTUS in RadLAX Gateway Hotel v. Amalgamated Bank. As a teacher of bankruptcy law, any bankruptcy case that makes it to the Supreme Court interests me. In this one I'm additionally a friend of the court, or at least I'm trying to be, though I'm hardly alone. Thirteen other bankruptcy professors in addition to me have signed an amicus brief that we hope the Court uses to get to what we believe is the right result. (You can read the brief here.)
I'll start with summary of the facts in this case and expect to follow in the days ahead with the legal issue, the split among the Circuit Courts of Appeal on this issue, and then to why I believe the respondents should win. I hope to conclude this series with a post after the oral arguments. I'll be sure to let everyone know what the Court ultimately decides.
In 2008 RadLAX LLC borrowed $142 million to purchase the Radisson Los Angeles Airport hotel. Two years later it filed a Chapter 11 bankruptcy. The debtor filed a plan of reorganization, which provided for the sale of the hotel to a "stalking horse" buyer. The plan also provided procedures for an auction of the property with the stalking horse offer as a minimum bid. So far so good.
However, the mortgage lenders were not happy with one part of the auction procedures: they could not "credit bid" the amount owed to them. For hundreds of years mortgage lenders and other secured creditors have been able to bid up to the amount owed to them without advancing additional cash. So-called "credit bidding" makes sense because the lenders get the proceeds of any auction and there is little reason to require them to pay cash only to have the court (or sheriff or whomever is conducting the sale) pay the money back to the lender. Credit bidding is primarily a shortcut but it has another important effect: it prevents a debtor and a friendly buyer from colluding to sell the property for less than it's worth.
The lenders to RadLAX smelled a rat and objected to the debtor's proposed auction procedures. The bankruptcy court and then the courts to which RadLAX appealed agreed with the lenders: lenders have a right to credit bid and there was no reason to deprive them of that right in this case. Having lost at all levels below the Supreme Court, RadLAX asked the SCOTUS to review the matter and the Court agreed.
Tomorrow we'll look at the relevant sections of the Bankruptcy Code to see how each side has made its argument.
I'll start with summary of the facts in this case and expect to follow in the days ahead with the legal issue, the split among the Circuit Courts of Appeal on this issue, and then to why I believe the respondents should win. I hope to conclude this series with a post after the oral arguments. I'll be sure to let everyone know what the Court ultimately decides.
In 2008 RadLAX LLC borrowed $142 million to purchase the Radisson Los Angeles Airport hotel. Two years later it filed a Chapter 11 bankruptcy. The debtor filed a plan of reorganization, which provided for the sale of the hotel to a "stalking horse" buyer. The plan also provided procedures for an auction of the property with the stalking horse offer as a minimum bid. So far so good.
However, the mortgage lenders were not happy with one part of the auction procedures: they could not "credit bid" the amount owed to them. For hundreds of years mortgage lenders and other secured creditors have been able to bid up to the amount owed to them without advancing additional cash. So-called "credit bidding" makes sense because the lenders get the proceeds of any auction and there is little reason to require them to pay cash only to have the court (or sheriff or whomever is conducting the sale) pay the money back to the lender. Credit bidding is primarily a shortcut but it has another important effect: it prevents a debtor and a friendly buyer from colluding to sell the property for less than it's worth.
The lenders to RadLAX smelled a rat and objected to the debtor's proposed auction procedures. The bankruptcy court and then the courts to which RadLAX appealed agreed with the lenders: lenders have a right to credit bid and there was no reason to deprive them of that right in this case. Having lost at all levels below the Supreme Court, RadLAX asked the SCOTUS to review the matter and the Court agreed.
Tomorrow we'll look at the relevant sections of the Bankruptcy Code to see how each side has made its argument.
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