On May 30, 2012, the United States Court of Appeals for the Eleventh Circuit held that a bankruptcy court in one federal district lacks jurisdiction to determine whether a debt was discharged under a chapter 11 plan confirmation order issued by a bankruptcy court in another federal district.  Alderwoods Group, Inc. v. Garcia, 1:10-cv-20509-KMM, 2012 U.S. App. LEXIS 10891 (11th Cir. May 30, 2012).  The decision makes it clear that a debtor must seek enforcement of its discharge order in the same federal court that granted the discharge in the first place.

The recently decided case of RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. ____ (2012), puts to rest a conflict among the Third, Fifth, and Seventh Circuits as to the right of secured creditors to credit bid at a proposed sale of their collateral under a plan of reorganization that the secured creditor opposes. The practice of credit bidding is codified in the Bankruptcy Code at 11 U.S.C. §363(k) and is the right of a secured creditor to bid the amount of its secured debt at a debtor’s sale of the creditor’s collateral in bankruptcy.

Between 2008 and 2010, the Second Circuit Court of Appeals (the Second Circuit) revisited the circumstances under which it would approve third-party non-debtor releases in Chapter 11 plans of reorganization. Traditionally, the Second Circuit found such releases to be appropriate if the bankruptcy case had certain special — “unique” — circumstances.1 InIn re Johns-Manville Corp., 517 F.3d 52 (2d. Cir.

SUMMARY

On May 29, 2012, the U.S. Supreme Court unanimously held in RadLAX Gateway Hotel, LLC v. Amalgamated Bank¹that a plan of reorganization that contemplates a sale of assets subject to validly perfected security interests cannot be “crammed down” over the objection of secured creditors who have not been afforded the right to credit bid for the assets.

BACKGROUND

In a unanimous decision, on May 29, 2012, the Supreme Court of the United States upheld an important protection against “cramdown” afforded to lenders in Chapter 11 cases.RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. , No. 11-166 (May 29, 2012). In RadLAX, the Supreme Court held that a Chapter 11 debtor could not deprive a secured creditor of its right to credit bid for property to be sold under a plan of reorganization.

On May 29, 2012, the Supreme Court ruled 8-0 that a debtor could not confirm a plan over a secured creditor’s objection if the plan provided for the sale of the secured creditor’s collateral free and clear of liens, but did not provide the secured creditor with the option of credit-bidding at the sale. RadLAX Gateway Hotel, LLC v. Amalgamated Bank, No. 11-166, 2012 U.S. LEXIS 3944 (U.S. May 29, 2012). Such a plan, the Supreme Court held, does not meet the statutory requirements for “fair and equitable” treatment of an objecting secured class in 11 U.S.C. § 1129(b)(2)(A).

On May 29, 2012, the United States Supreme Court issued its decision in RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. ___ (2012), which affirmed that secured creditors have the right to use their claims to credit bid in auctions of their collateral conducted under bankruptcy reorganization plans. The decision is a victory for secured lenders because these credit bid rights ensure that, in the context of a collateral sale, secured lenders will be able to use their claims to purchase their collateral if they are not being repaid in full.

In the recent case of RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 2012 WL 1912197 (May 29, 2012), the Supreme Court in a unanimous 8-0 opinion, delivered by Justice Scalia, held that the Bankruptcy Code statutory scheme mandates that secured creditors must be allowed to credit-bid in 363 sales of assets where the sale is incorporated into a plan of reorganization.

The recent bankruptcy case of Hostess has centered on Hostess’s attempts to reject collective bargaining agreements with its unions.  Hostess has emphasized that realigning labor costs is essential to its ability to successfully reorganize.  Section 1113 of the Bankruptcy Code sets forth detailed requirements that a debtor must meet to modify or reject CBAs.  Bankruptcy courts’ ultimate decision to authorize rejection of a CBA frequently turns on a detailed examination of the evidence presented in support of the rejection motion.

On May 4, 2012 Judge Kevin J. Carey of the U.S. Bankruptcy Court for the District of Delaware held that a claim against a debtor’s estate, transferred to a third party, is subject to the same infirmities as in the hands of the original holder of the claim.  In re KB Toys, Inc., — B.R. —-, 2012 WL 1570755, at *11 (Bankr. D. Del. 2012).  Judge Carey’s opinion diverged from, and criticized, the decision of the U.S. District Court for the Southern District of New York in Enron Corp. v. Springfield Assocs., L.L.C., 379 B.R. 425 (S.D.N.Y.