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Client Alert.
May 29, 2012
Supreme Court Resolves Conflict in Circuit Courts
Regarding Credit Bidding
By Deanne E. Maynard, Adam A. Lewis, and Norman S. Rosenbaum
On May 29, 2012, the United States Supr eme Court resolved a split among th e federal courts of appeals on an im portant
bankruptcy issue, agreeing with argum ents Morrison & Foerster advanced o n behalf of Amalgamated Bank. In a
unanimous opinion in RadLAX Gatew ay Hotel, LLC v. Amalgamated Bank ,1 the Court held that a Chapter 11 plan of
reorganization that provides for a sale of a secured creditor’s collateral f ree and clear of liens must aff ord that secured
creditor the right to credit bid. The decis ion is significant because it allows a secured creditor to protect the b enefit of its
bargain to either be repaid in full or take possession of its collateral, by preventing the debtor from s tripping the creditor’s
lien for an amount at less than the cred itor thinks the property is worth.
BACKGROUND
At the height of the last economic bubble, Amalgamated Bank and its co-lender ( “the Lenders”) made loans to two re lated
sets of debtors that separately owned two hotels and related properties. T he properties and related assets sec ured the
loans, which exceeded $300,000,000 in t otal. By 2009, the debtors were unable to make their loan pa yments; they filed
voluntary Chapter 11 petitions under the Bankruptcy Code on August 19, 2009. By that time, the value of the Lenders’
collateral had dropped far below the debt it secured. Thus, there were no unencumbered assets in the debto rs’ estates
from which to pay unsecured creditors without the Lenders’ consent.
In the summer of 2010, the debtors pr oposed reorganization plans that pro vided for a sale at auction of their a ssets to a
“stalking horse” bidder or a succes sful over-bidder free and clear of the L enders’ liens, with the liens transf erred to the
proceeds of the sale. The plans incl uded proposed bidding procedures f or the auction that would have, am ong other
things, precluded the Lenders from credit bidding their claims, requiring instead that all bids be cash bids. T he debtors
based this feature of their plan on the holdings of the United States Cour t of Appeals for the Third Circuit in In re
Philadelphia Newspapers, LLC,2 which appr oved such bidding procedures for a plan sale free and clear, and the U nited
States Court of Appeals for the Fif th Circuit in Scotia Pacific Co. v . Official Committee of Unsecured C reditors (In re
Pacific Lumber Co.).3
The Bankruptcy Court considered the c redit bidding procedures first. T he Lenders objected to being denied t he right to
credit bid on various grounds. The Ba nkruptcy Court sustained their objec tions, and after a rare direct appeal b y the
debtors, the Seventh Circuit affirm ed in River Road Hotel Partners, LLC v. Amalgamated Bank (In re River Ro ad Hotel
Partners, LLC)4. Just a f ew days later, the Lenders conf irmed their own plan of reorganization with respect to one of the
hotels, leaving the RadLAX debtors as the only debtors to whom these rulin gs remained relevant.
1 No. 11-166.
2 599 F.3d 298 (3d Cir. 2010).
3 584F.3d 299 (5th Cir. 2009).
4 651F.3d 642 (7th Cir. 2011).
