Chapter 11

RadLAX Gateway Hotel v. Amalgamated Bank

Issues

Whether a bankrupt debtor under a Chapter 11 plan can sell collateral assets free and clear of liens and at the same time prohibit a secured creditor from using its credit to bid on the assets.

 

RadLAX Gateway Hotel, LLC and related entities obtained a secured $142 million loan in 2007 to construct the Radisson Hotel at Los Angeles International Airport. Substantially all of RadLAX’s assets were designated as collateral for this loan. However, still saddled with $120 million of debt, RadLAX filed for bankruptcy in August 2009. RadLAX proposed a Chapter 11 reorganization plan that called for an auction sale of all its assets, free and clear of liens. The plan prohibited secured lenders from credit bidding, i.e. using their loan amounts to offset the asset prices at the auction. Amalgamated Bank, representing the lender, objected to the plan, arguing that the plan violatedSection 1129(b)(2)(A)(ii) of the Bankruptcy Code. The bankruptcy court agreed and rejected RadLAX’s plan. The Seventh Circuit affirmed on appeal. The Supreme Court’s resolution of this case may affect the balance of power between debtors and secured creditors in bankruptcy proceedings.

Questions as Framed for the Court by the Parties

Whether a debtor may pursue a Chapter 11 plan that proposes to sell assets free of liens without allowing the secured creditor to credit bid, but instead providing it with the indubitable equivalent of its claim under Section 1129(b)(2)(A)(iii) of the Bankruptcy Code.

This case involves the interpretation of Section 1129(b)(2)(A) of the Bankruptcy Code (“the Code”). See 11 U.S.C.

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Additional Resources

Bloomberg Businessweek: RadLax, Madoff, AMR, MF Global, Hostess, Ambac: Bankruptcy (Mar. 15, 2012)

HotelNewsNow.com: Hotel Credit Bidding Draws Supreme Court’s Eye (Dec. 22, 2011)

New York Times DealBook: High Court Spotlight on Right to ‘Credit Bid’ (Dec. 14, 2011)

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Stern v. Marshall

Issues

Is it constitutional for a United States bankruptcy court to issue a final decision regarding a compulsory counterclaim based on state law, or is the bankruptcy court limited to only issuing final decisions regarding counterclaims which are based on “core” issues of the bankruptcy proceeding?

 

In 1994, J. Howard Marshall II, a very wealthy oil executive, married Vickie Lynn Marshall (“Vickie”), a model and actress who worked under the name Anna Nicole Smith. J. Howard Marshall died shortly thereafter, leaving the bulk of his estate to his son E. Pierce Marshall (“Pierce”). Vickie filed for Chapter 11 bankruptcy protection in 1996, and Pierce brought a defamation claim against her in the bankruptcy court. Vickie made a compulsory counterclaim, alleging that Pierce had tortiously interfered with J. Howard Marshall’s intent to give her part of his estate. The bankruptcy court rendered a judgment in favor of Vickie. Pierce eventually appealed to the Ninth Circuit, which reversed the bankruptcy court’s decision on the grounds that Vickie’s counterclaim was not a “core” proceeding, and therefore was improperly before the bankruptcy court. Vickie’s estate, represented by her executor Howard K. Stern, argues that the Ninth Circuit erroneously applied 28 U.S.C. § 157(b)(2)(C) because the provision categorically establishes compulsory counterclaims as core proceedings. The estate of Pierce Marshall asserts that the counterclaim raised in this case deals with a tort claim that arises under state law, and is therefore not part of the core proceedings. The Supreme Court’s decision in this case will determine whether Congress intended for 28 U.S.C. § 157(b)(2)(C) to categorize all compulsory counterclaims as core proceedings and, if this was Congress’ intent, whether this intent is constitutional.

Questions as Framed for the Court by the Parties

1) Whether the Ninth Circuit opinion, which renders §157(b)(2)(C) surplusage in light of §157(b)(2)(B), contravenes Congress’ intent in enacting §157(b)(2)(C).

2) Whether Congress may, under Articles I and III, constitutionally authorize core jurisdiction over debtors’ compulsory counterclaims to proofs of claim.

3) Whether the Ninth Circuit misapplied Marathon and Katchen and contravened this Court’s post-Marathon precedent, creating a circuit split in the process, by holding that Congress cannot constitutionally authorize non-Article III bankruptcy judges to enter final judgment on all compulsory counterclaims to proofs of claim.

In 1994, J. Howard Marshall II, a very wealthy retired oil executive, married Vickie Lynn Marshall (hereinafter “Vickie”); at the time of their marriage, she was 26 and he was 89. See In re Marshall, 600 F.3d 1037, 1041–42 (9th Cir.

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Additional Resources

· The Volokh Conspiracy, Todd Zywicki: Ninth Circuit Decision in Marshall v. Stern (Formerly Marshall v. Marshall) (Mar. 22, 2010)

· USA Today, Joan Biskupic: Supreme Court to Hear Anna Nicole Smith Estate Case (Oct. 1, 2010)

· New York Times, David Stout: Anna Nicole Smith Wins Supreme Court Case (May 1, 2006)

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