OCTOBER TERM, 1998
Syllabus
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
v.
203 NORTH LASALLE STREET PARTNERSHIP
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH
CIRCUIT
No. 97-1418. Argued November 2, 1998-Decided May 3,1999
A loan by petitioner Bank of America National Trust and Savings
Association (Bank) to respondent 203 North LaSalle Street
Partnership (Debtor) was secured by a mortgage on the Debtor's
interest in a Chicago office building, the value of which was less
than the balance due the Bank. After the Debtor defaulted and the
Bank began state-court foreclosure, the Debtor filed a voluntary
petition for relief under Chapter 11 of the Bankruptcy Code, 11 U.
S. C. § 1101
et seq. The Debtor proposed a reorganization
plan under which,
inter alia, certain of its former partners
would contribute new capital in exchange for the Debtor's entire
ownership of the reorganized entity. That condition was an
exclusive eligibility provision: the old equity holders were the
only ones who could contribute new capital. The Bank objected and,
as sole member of an impaired class of creditors, thereby blocked
confirmation of the plan on a consensual basis. See § 1129(a)(8).
The Debtor, however, resorted to the alternate, judicial "cramdown"
process for imposing a plan on a dissenting class. § 1129(b). Among
the conditions for a cramdown is the requirement that the plan be
"fair and equitable" with respect to each class of impaired
unsecured claims that has not accepted it. § 1129(b)(1). A plan may
be found to be fair and equitable if "the holder of any claim ...
junior to the claims of such class will not receive or retain under
the plan on account of such junior claim ... any property." §
1129(b)(2)(B)(ii). Under this "absolute priority rule," the Bank
argued, the plan could not be confirmed as a cramdown because the
Debtor's old equity holders would receive property even though the
Bank's unsecured deficiency claim would not be paid in full. The
Bankruptcy Court approved the plan nonetheless, and the District
Court and the Court of Appeals affirmed. The Seventh Circuit found
ambiguity in the absolute priority rule's language, and interpreted
the phrase "on account of" to permit recognition of a "new value
corollary" to the rule, under which the objection of an impaired
senior class does not bar junior claim holders from receiving or
retaining property interests in the debtor after reorganization, if
they contribute new capital in money or money's worth, reasonably
equivalent to the property's value, and
435
necessary for successful reorganization of the restructured
enterprise. The court held that when an old equity holder retains
an equity interest in the reorganized debtor by meeting the
corollary's requirements, he is not receiving or retaining that
interest "on account of" his prior equitable ownership, but,
rather, "on account of" a new, substantial, necessary, and fair
infusion of capital.
Held: A debtor's prebankruptcy equity holders may not,
over the objection of a senior class of impaired creditors,
contribute new capital and receive ownership interests in the
reorganized entity, when that opportunity is given exclusively to
the old equity holders under a plan adopted without consideration
of alternatives. The old equity holders are disqualified from
participating in such a "new value" transaction by §
1129(b)(2)(B)(ii), which in these circumstances bars a junior
interest holder's receipt of any property on account of his prior
interest. Pp.444-458.
(a) The Court does not decide whether the statute includes a new
value corollary or exception. The drafting history is equivocal,
but does nothing to disparage the possibility apparent in the
statutory text, that § 1129(b)(2)(B)(ii) may carry such a
corollary. Although there is no literal reference to "new value" in
the phrase "on account of such junior claim," the phrase could
arguably carry such an implication in modifying the prohibition
against receipt by junior claimants of any interest under a plan
while a senior class of unconsenting creditors goes less than fully
paid. Pp. 444-449.
(b) The Court adopts as the better reading of the "on account
of" modifier the more common understanding that the phrase means
"because of," since this is the usage meant for the phrase at other
places in the statute, see
Cohen v.
de la Cruz,
523 U. S. 213,
219-220. Thus, a causal relationship between holding the prior
claim or interest and receiving or retaining property is what
activates the absolute priority rule. As to the degree of causation
that will disqualify a plan, the Government argues not only that
any degree of causation between earlier interests and retained
property will activate the bar to a plan providing for later
property, but also that whenever the holders of equity in the
Debtor end up with some property there will be some causation. A
less absolute statutory prohibition would follow from reading the
"on account of" language as intended to reconcile the two
recognized policies underlying Chapter 11, of preserving going
concerns and maximizing property available to satisfy creditors,
see
Toibb v.
Radloff, 501 U. S. 157,163.
Causation between the old equity's holdings and subsequent property
substantial enough to disqualify a plan would presumably occur on
this view whenever old equity's later prop-
436
436 BANK OF AMERICA NAT. TRUST AND SAY. ASSN.
v. 203
NORTH LASALLE STREET PARTNERSHIP
Syllabus
erty would come at a price that failed to provide the greatest
possible addition to the bankruptcy estate, i.
e., whenever
the equity holders obtained or preserved an ownership interest for
less than someone else would have paid. Pp.449-451.
(c) Assuming a new value corollary, plans providing junior
interest holders with exclusive opportunities free from competition
and without benefit of market valuation fall within §
1129(b)(2)(B)(ii)'s prohibition. In this case, the proposed plan is
doomed by its provision for vesting equity in the reorganized
business in the Debtor's partners without extending an opportunity
to anyone else either to compete for that equity or to propose a
competing reorganization plan. The exclusiveness of the
opportunity, with its protection against the market's scrutiny of
the stated purchase price, renders the partners' right a property
interest extended "on account of" the old equity position and
therefore subject to an unpaid senior creditor class's objection.
Under a plan granting old equity on exclusive right, any
determination that the purchase price was top dollar would
necessarily be made by the bankruptcy judge, whereas the best way
to determine value is exposure to a market. In the interest of
statutory coherence, the Bankruptcy Code's disfavor for decisions
untested by competitive choice ought to extend to valuations in
administering § 1129(b)(2)(B)(ii) when some form of market
valuation may be available to test the adequacy of an old equity
holder's proposed contribution. Pp. 454-458.
126 F.3d
955, reversed and remanded.
SOUTER, J., delivered the opinion of the Court, in which
REHNQUIST, C. J., and O'CONNOR, KENNEDY, GINSBURG, and BREYER, JJ.,
joined. THOMAS, J., filed an opinion concurring in the judgment, in
which SCALIA, J., joined,
post, p. 458. STEVENS, J., filed a
dissenting opinion,
post, p. 463.
Roy T. Englert, Jr., argued the cause for petitioner.
With him on the briefs were
Thomas S.
Kiriakos and
James C.
Schroeder.
Patricia A. Millett argued the cause for the United States as
amicus curiae urging reversal. With her on the brief were Solicitor
General Waxman, Assistant Attorney General Hunger, Deputy Solicitor
General Wallace, William Kanter, and Bruce G. Forrest.
437
Richard M. Bendix, Jr., argued the cause for
respondent.
With him on the brief were
Malcolm M. Gaynor and
Paul
JUSTICE SOUTER delivered the opinion of the Court.
The issue in this Chapter 11 reorganization case is whether a
debtor's pre bankruptcy equity holders may, over the objection of a
senior class of impaired creditors, contribute new capital and
receive ownership interests in the reorganized entity, when that
opportunity is given exclusively to the old equity holders under a
plan adopted without consideration of alternatives. We hold that
old equity holders are disqualified from participating in such a
"new value" transaction by the terms of 11 U. S. C. §
1129(b)(2)(B)(ii), which in such circumstances bars a junior
interest holder's receipt of any property on account of his prior
interest.
I
Petitioner, Bank of America National Trust and Savings
Association (Bank),l is the major creditor of respondent, 203 North
LaSalle Street Partnership (Debtor or Partnership),
*Briefs of amici curiae urging reversal were filed for the
American Bankers Association et al. by John J. Gill III, Michael F.
Crotty, and Christopher E. Chenoweth; for the American College of
Real Estate Lawyers by Robert M. Zinman and Christopher F. Graham;
for the American Council of Life Insurance by James A. Pardo, Jr.,
David G. Epstein, Brian C. Walsh, and Phillip E. Stano; and for
Ronald Mann et al. by Mr. Mann, pro se, Robert K. Rasmussen, and
Alan Schwartz.
Briefs of
amici curiae urging affirmance were filed for
the National Association of Credit Management by
Charles M.
Tatelbaum and
Elizabeth Warren; for National Small
Business United et al. by
Isaac M. Pachulski, K. John
Shaffer, and
Kenneth N. Klee; and for Bruce A. Markell,
pro se.
1 Bank of America, Illinois, was the appellant in the case
below. As a result of a merger, it is now known as Bank of America
National Trust and Savings Association.
438
438 BANK OF AMERICA NAT. TRUST AND SAY. ASSN.
v. 203
NORTH LASALLE STREET PARTNERSHIP
an Illinois real estate limited partnership.2 The Bank lent the
Debtor some $93 million, secured by a nonrecourse first mortgage 3
on the Debtor's principal asset, 15 floors of an office building in
downtown Chicago. In January 1995, the Debtor defaulted, and the
Bank began foreclosure in a state court.
In March, the Debtor responded with a voluntary petition for
relief under Chapter 11 of the Bankruptcy Code, 11 U. s. C. § 1101
et seq., which automatically stayed the foreclosure
proceedings, see § 362(a).
In re 203 N.
LaSalle Street
Partnership, 126 F.3d
955, 958
(CA7 1997);
Bank of America, Illinois v.
203 N.
LaSalle Street Partnership, 195 B. R. 692, 696
(ND Ill. 1996). The Debtor's principal objective was to ensure that
its partners retained title to the property so as to avoid roughly
$20 million in personal tax liabilities, which would fall due if
the Bank foreclosed. 126 F. 3d, at 958; 195 B. R., at 698. The
Debtor proceeded to propose a reorganization plan during the
120-day period when it alone had the right to do so, see 11 U. s.
C. § 1121(b); see also § 1121(c) (exclusivity period extends to 180
days if the debtor files plan within the initial 120 days).4 The
Bankruptcy Court rejected the Bank's motion to terminate the period
of exclusivity to make way for a plan of its own to
2 The limited partners in this case are considered the Debtor's
equity holders under the Bankruptcy Code, see 11 U. S. C. §§
101(16), (17), and the Debtor Partnership's actions may be
understood as taken on behalf of its equity holders.
3 A nonrecourse loan requires the Bank to look only to the
Debtor's collateral for payment. But see n. 6,
infra.
4 The Debtor filed an initial plan on April 13, 1995, and
amended it on May 12, 1995. The Bank objected, and the Bankruptcy
Court rejected the plan on the ground that it was not feasible. See
§ 1129(a)(11). The Debtor submitted a new plan on September 11,
1995.
In re 203 N. LaSalle,
126 F.3d
955, 958-959 (CA7 1997).
439
liquidate the property, and instead extended the exclusivity
period for cause shown, under § 1121(d).5
The value of the mortgaged property was less than the balance
due the Bank, which elected to divide its undersecured claim into
secured and unsecured deficiency claims under § 506(a) and §
1111(b).6 126 F. 3d, at 958. Under the plan, the Debtor separately
classified the Bank's secured claim, its unsecured deficiency
claim, and unsecured trade debt owed to other creditors. See §
1122(a).7 The Bankruptcy Court found that the Debtor's available
assets were prepetition rents in a cash account of $3.1 million and
the 15 floors of rental property worth $54.5 million. The secured
claim was valued at the latter figure, leaving the Bank with an
unsecured deficiency of $38.5 million.
So far as we need be concerned here, the Debtor's plan had these
further features:
5 The Bank neither appealed the denial nor raised it as an issue
in this appeal.
6 Having agreed to waive recourse against any property of the
Debtor other than the real estate, the Bank had no unsecured claim
outside of Chapter 11. Section 1111(b), however, provides that
nonrecourse secured creditors who are undersecured must be treated
in Chapter 11 as if they had recourse.
7 Indeed, the Seventh Circuit apparently requires separate
classification of the deficiency claim of an undersecured creditor
from other general unsecured claims. See
In re Woodbrook
Associates, 19 F.3d
312, 319 (1994). Nonetheless, the Bank argued that if its
deficiency claim had been included in the class of general
unsecured creditors, its vote against confirmation would have
resulted in the plan's rejection by that class. The Bankruptcy
Court and the District Court rejected the contention that the
classifications were gerrymandered to obtain requisite approval by
a single class,
In re 203 N. LaSalle Street Limited
Partnership, 190 B. R. 567, 592-593 (Bkrtcy. Ct. ND Ill. 1995);
Bank of America, Illinois v.
203 N. LaSalle Street
Partnership, 195 B. R. 692, 705 (ND Ill. 1996), and the Court
of Appeals agreed, 126 F. 3d, at 968. The Bank sought no review of
that issue, which is thus not before us.
440
440 BANK OF AMERICA NAT. TRUST AND SAY. ASSN.
v. 203
NORTH LASALLE STREET PARTNERSHIP
(1) The Bank's $54.5 million secured claim would be paid in full
between 7 and 10 years after the original 1995 repayment date.8
(2) The Bank's $38.5 million unsecured deficiency claim would be
discharged for an estimated 16% of its present value.9
(3) The remaining unsecured claims of $90,000, held by the
outside trade creditors, would be paid in full, without interest,
on the effective date of the plan.lo
(4) Certain former partners of the Debtor would contribute
$6.125 million in new capital over the course of five years (the
contribution being worth some $4.1 million in present value), in
exchange for the Partnership's entire ownership of the reorganized
debtor.
The last condition was an exclusive eligibility provision: the
old equity holders were the only ones who could contribute new
capital.ll
The Bank objected and, being the sole member of an impaired
class of creditors, thereby blocked confirmation of the
8 Payment consisted of a prompt cash payment of $1,149,500 and a
secured, 7-year note, extendable at the Debtor's option. 126 F. 3d,
at 959,
9 This expected yield was based upon the Bankruptcy Court's
projection that a sale or refinancing of the property on the 10th
anniversary of the plan confirmation would produce a $19-million
distribution to the Bank.
10 The Debtor originally owed $160,000 in unsecured trade debt.
After filing for bankruptcy, the general partners purchased some of
the trade claims. Upon confirmation, the insiders would waive all
general unsecured claims they held. 126 F. 3d, at 958, n. 2; 195 B.
R., at 698.
11 The plan eliminated the interests of noncontributing
partners. More than 60% of the Partnership interests would change
hands on confirmation of the plan. See Brief for Respondent 4, n.
7. The new Partnership, however, would consist solely of former
partners, a feature critical to the preservation of the
Partnership's tax shelter. Tr. of Oral Arg. 32.
441
plan on a consensual basis. See § 1129(a)(8).12 The Debtor,
however, took the alternate route to confirmation of a
reorganization plan, forthrightly known as the judicial "cramdown"
process for imposing a plan on a dissenting class. § 1129(b). See
generally Klee, All You Ever Wanted to Know About Cram Down Under
the New Bankruptcy Code, 53 Am. Bankr. L. J. 133 (1979).
There are two conditions for a cram down. First, all
requirements of § 1129(a) must be met (save for the plan's
acceptance by each impaired class of claims or interests, see §
1129(a)(8)). Critical among them are the conditions that the plan
be accepted by at least one class of impaired creditors, see §
1129(a)(10), and satisfy the "best-interest-ofcreditors" test, see
§ 1129(a)(7).13 Here, the class of trade creditors with impaired
unsecured claims voted for the plan,14 126 F. 3d, at 959, and there
was no issue of best interest. Second, the objection of an impaired
creditor class may be overridden only if "the plan does not
discriminate unfairly, and is fair and equitable, with respect to
each class of claims or interests that is impaired under, and has
not accepted, the plan." § 1129(b)(1). As to a dissenting class of
impaired unsecured creditors, such a plan may be found to be "fair
and equitable" only if the allowed value of the claim is to be paid
in full, § 1129(b)(2)(B)(i), or, in the alternative,
12 A class of creditors accepts if a majority of the creditors
and those holding two-thirds of the total dollar amount of the
claims within that class vote to approve the plan. § 1126(c).
13 Section 1129(a)(7) provides that if the holder of a claim
impaired under a plan of reorganization has not accepted the plan,
then such holder must "receive ... on account of such claim ...
property of a value, as of the effective date of the plan, that is
not less than the amount that such holder would so receive ... if
the debtor were liquidated under chapter 7 ... on such date." The
"best interests" test applies to individual creditors holding
impaired claims, even if the class as a whole votes to accept the
plan.
14 Claims are unimpaired if they retain all of their prepetition
legal, equitable, and contractual rights against the debtor. §
1124.
442
442 BANK OF AMERICA NAT. TRUST AND SAY. ASSN.
v. 203
NORTH LASALLE STREET PARTNERSHIP
if "the holder of any claim or interest that is junior to the
claims of such [impaired unsecured] class will not receive or
retain under the plan on account of such junior claim or interest
any property," § 1129(b)(2)(B)(ii). That latter condition is the
core of what is known as the "absolute priority rule."
The absolute priority rule was the basis for the Bank's position
that the plan could not be confirmed as a cramdown. As the Bank
read the rule, the plan was open to objection simply because
certain old equity holders in the Debtor Partnership would receive
property even though the Bank's unsecured deficiency claim would
not be paid in full. The Bankruptcy Court approved the plan
nonetheless, and accordingly denied the Bank's pending motion to
convert the case to Chapter 7 liquidation, or to dismiss the case.
The District Court affirmed, 195 B. R. 692 (ND Ill. 1996), as did
the Court of Appeals.
The majority of the Seventh Circuit's divided panel found
ambiguity in the language of the statutory absolute priority rule,
and looked beyond the text to interpret the phrase "on account of"
as permitting recognition of a "new value corollary" to the rule.
126 F. 3d, at 964-965. According to the panel, the corollary, as
stated by this Court in
Case v.
Los Angeles Lumber
Products Co., 308
U. S. 106, 118 (1939), provides that the objection of an
impaired senior class does not bar junior claim holders from
receiving or retaining property interests in the debtor after
reorganization, if they contribute new capital in money or money's
worth, reasonably equivalent to the property's value, and necessary
for successful reorganization of the restructured enterprise. The
panel majority held that
"when an old equity holder retains an equity interest in the
reorganized debtor by meeting the requirements of the new value
corollary, he is not receiving or retaining that interest 'on
account of' his prior equitable owner-
443
ship of the debtor. Rather, he is allowed to participate in the
reorganized entity 'on account of' a new, substantial, necessary
and fair infusion of capital." 126 F. 3d, at 964.
In the dissent's contrary view, there is nothing ambiguous about
the text: the "plain language of the absolute priority rule ...
does not include a new value exception."
Id., at 970
(opinion of Kanne, J.). Since "[t]he Plan in this case gives [the
Debtor's] partners the exclusive right to retain their ownership
interest in the indebted property
because of their status as
... prior interest holder[s]," id., at 973, the dissent would have
reversed confirmation of the plan.
We granted certiorari, 523 U. S. 1106 (1998), to resolve a
Circuit split on the issue. The Seventh Circuit in this case joined
the Ninth in relying on a new value corollary to the absolute
priority rule to support confirmation of such plans. See
In re
Bonner Mall Partnership, 2 F.3d
899, 910-916 (CA9 1993), cert. granted, 510 U. S. 1039, vacatur
denied and appeal dism'd as moot,
513 U. S. 18 (1994). The
Second and Fourth Circuits, by contrast, without explicitly
rejecting the corollary, have disapproved plans similar to this
one. See
In re Coltex Loop Central Three Partners, L. P.,
138 F.3d
39, 44-45
(CA2 1998);
In re Bryson Properties, XVIII,
961 F. 2d 496,504 (CA4), cert. denied, 506 U. S. 866 (1992).15
We do not decide whether the statute includes a new value corollary
or exception, but hold that on any reading respondent's proposed
plan fails to satisfy the statute, and accordingly reverse.
15 All four of these cases arose in the single-asset real estate
context, the typical one in which new value plans are proposed. See
7 Collier on Bankruptcy ~ 1129.04[4][c][ii][B], p. 1129-113 (rev.
15th ed. 1998). See also Strub, Competition, Bargaining, and
Exclusivity under the New Value Rule: Applying the Single-Asset
Paradigm of
Bonner Mall, 111 Banking L. J. 228, 231 (1994)
("Most of the cases discussing the new value issue have done so in
connection with an attempt by a single-asset debtor to reorganize
under chapter 11").
444
444 BANK OF AMERICA NAT. TRUST AND SAY. ASSN.
v. 203
NORTH LASALLE STREET PARTNERSHIP
II
The terms "absolute priority rule" and "new value corollary" (or
"exception") are creatures of law antedating the current Bankruptcy
Code, and to understand both those terms and the related but
inexact language of the Code some history is helpful. The
Bankruptcy Act preceding the Code contained no such provision as
subsection (b)(2)(B)(ii), its subject having been addressed by two
interpretive rules. The first was a specific gloss on the
requirement of § 77B (and its successor, Chapter X) of the old Act,
that any reorganization plan be "fair and equitable." 11 U. S. C. §
205(e) (1934 ed., Supp. I) (repealed 1938) (§ 77B); 11 u. S. C. §
621(2) (1934 ed., Supp. IV) (repealed 1979) (Chapter X). The reason
for such a limitation was the danger inherent in any reorganization
plan proposed by a debtor, then and now, that the plan will simply
turn out to be too good a deal for the debtor's owners. See H. R.
Doc. No. 93-137, pt. I, p. 255 (1973) (discussing concern with "the
ability of a few insiders, whether representatives of management or
major creditors, to use the reorganization process to gain an
unfair advantage");
ibid. ("[I]t was believed that
creditors, because of management's position of dominance, were not
able to bargain effectively without a clear standard of fairness
and judicial control"); Ayer, Rethinking Absolute Priority After
Ahlers, 87 Mich. L. Rev. 963, 969-973 (1989). Hence the
pre-Code judicial response known as the absolute priority rule,
that fairness and equity required that "the creditors ... be paid
before the stockholders could retain [equity interests] for any
purpose whatever."
Northern Pacific R. Co. v.
Boyd,
228 U. S. 482,
508 (1913). See also
Louisville Trust Co. v.
Louisville, N.
A. & C.
R. Co., 174 U. S. 674, 684 (1899)
(reciting "the familiar rule that the stockholder's interest in the
property is subordinate to the rights of creditors; first of
secured and then of unsecured creditors," and concluding that "any
arrangement of the parties by which the subordi-
445
nate rights and interests of the stockholders are attempted to
be secured at the expense of the prior rights of either class of
creditors comes within judicial denunciation").
The second interpretive rule addressed the first. Its classic
formulation occurred in
Case v.
Los Angeles Lumber
Products Co., in which the Court spoke through Justice Douglas
in this dictum:
"It is, of course, clear that there are circumstances under
which stockholders may participate in a plan of reorganization of
an insolvent debtor .... Where thee] necessity [for new capital]
exists and the old stockholders make a fresh contribution and
receive in return a participation reasonably equivalent to their
contribution, no objection can be made ....
"[WJe believe that to accord 'the creditor his full right of
priority against the corporate assets' where the debtor is
insolvent, the stockholder's participation must be based on a
contribution in money or in money's worth, reasonably equivalent in
view of all the circumstances to the participation of the
stockholder." 308 U. S., at 121-122.
Although counsel for one of the parties here has described the
Case observation as "'black-letter' principle," Brief for
Respondent 38, it never rose above the technical level of dictum in
any opinion of this Court, which last addressed it in
Norwest
Bank Worthington v.
Ahlers, 485 U. S. 197 (1988),
holding that a contribution of "'labor, experience, and expertise'
" by a junior interest holder was not in the" 'money's worth'" that
the
Case observation required. 485 U. S., at 203-205. See
also
Marine Harbor Properties, Inc. v.
Manufacturers
Trust Co., 317 U.
S. 78, 85 (1942);
Consolidated Rock Products Co. v.
Du Bois, 312
U. S. 510, 529, n. 27 (1941). Nor, prior to the enactment of
the current Bankruptcy Code,
446
446 BANK OF AMERICA NAT. TRUST AND SAY. ASSN.
v. 203
NORTH LASALLE STREET PARTNERSHIP
did any court rely on the
Case dictum to approve a plan
that gave old equity a property right after reorganization. See
Ayer,
supra, at 1016; Markell, Owners, Auctions, and
Absolute Priority in Bankruptcy Reorganizations, 44 Stan. L. Rev.
69, 92 (1991). Hence the controversy over how weighty the
Case dictum had become, as reflected in the alternative
labels for the new value notion: some writers and courts (including
this one, see
Ahlers, supra, at 203-204, n. 3) have spoken
of it as an exception to the absolute priority rule, see,
e. g.,
In re Potter Material Service, Inc., 781 F. 2d 99, 101 (CA7
1986); Miller, Bankruptcy's New Value Exception: No Longer a
Necessity, 77 B. U. L. Rev. 975 (1997); Georgakopoulos, New Value,
Fresh Start, 3 Stan. J. L. Bus. & Fin. 125 (1997), while others
have characterized it as a simple corollary to the rule, see,
e.
g., In re Bonner Mall Partnership, 2 F. 3d, at 906; Ayer,
supra, at 999.
Enactment of the Bankruptcy Code in place of the prior Act might
have resolved the status of new value by a provision bearing its
name or at least unmistakably couched in its terms, but the
Congress chose not to avail itself of that opportunity. In 1973,
Congress had considered proposals by the Bankruptcy Commission that
included a recommendation to make the absolute priority rule more
supple by allowing nonmonetary new value contributions. H. R. Doc.
No. 93137, pt. I, at 258-259; id., pt. II, at 242, 252. Although
Congress took no action on any of the ensuing bills containing
language that would have enacted such an expanded new value
concept,16 each of them was reintroduced in the next congressional
session. See H. R. 31, 94th Cong., 1st Sess.,
16 See H. R. 10792, 93d Cong., 1st Sess., §§ 7-303(4),
7-31O(d)(2)(B) (1973); H. R. 16643, 93d Cong., 2d Sess., §§
7-301(4), 7-308(d)(2)(B) (1974); S. 2565, 93d Cong., 1st Sess., §§
7-303(4), 7-310(d)(2)(B) (1973); S. 4046, 93d Cong., 2d Sess., §§
7-301(4), 7-308(d)(2)(B) (1974).
447
§§ 7-303(4),17 7-310(d)(2)(B) (1975); 18 H. R. 32, 94th Cong.,
1st Sess., §§ 7-301(4), 7-308(d)(2)(B) (1975); S. 235, 94th Cong.,
1st Sess., §§ 7-301(4), 7-308(d)(2)(B) (1975); S. 236, 94th Cong.,
1st Sess., §§ 7-303(4), 7-310(d)(2)(B) (1975). After extensive
hearings, a substantially revised House bill emerged, but without
any provision for nonmonetary new value contributions. See H. R. 6,
95th Cong., 1st Sess., §§ 1123, 1129(b) (1977).19 After a lengthy
markup session, the House produced H. R. 8200, 95th Cong., 1st
Sess. (1977), which would eventually become the law, H. R. Rep. No.
95-595, p. 3 (1977). It had no explicit new value language,
expansive or otherwise, but did codify the absolute priority rule
in nearly its present form. See H. R. 8200,
supra, §
1129(b)(2)(B)(iv) ("[T]he holders of claims or interests of any
class of claims or interests, as the case may be, that is junior to
such class will not receive or retain under
17Section 7-303(4) read: "[W]hen the equity security holders
retain an interest under the plan, the individual debtor, certain
partners or equity security holders will make a contribution which
is important to the operation of the reorganized debtor or the
successor under the plan, for participation by the individual
debtor, such partners, or such holders under the plan on a basis
which reasonably approximates the value, if any, of their
interests, and the additional estimated value of such
contribution."
18 Section 7-31O(d)(2)(B) read: "Subject to the provisions of
section 7-303 (3) and (4) and the court's making any findings
required thereby, there is a reasonable basis for the valuation on
which the plan is based and the plan is fair and equitable in that
there is a reasonable probability that the securities issued and
other consideration distributed under the plan will fully
compensate the respective classes of creditors and equity security
holders of the debtor for their respective interests in the debtor
or his property."
19 Section 1129(b) of H. R. 6 read, in relevant part: "[T]he
court, on request of the proponent of such plan, shall confirm such
plan ... if such plan is fair and equitable with respect to all
classes except any class that has accepted the plan and that is
comprised of claims or interests on account of which the holders of
such claims or interests will receive or retain under the plan not
more than would be so received or retained under a plan that is
fair and equitable with respect to all classes."
448
448 BANK OF AMERICA NAT. TRUST AND SAY. ASSN.
v. 203
NORTH LASALLE STREET PARTNERSHIP
the plan on account of such junior claims or interests any
property").20
For the purpose of plumbing the meaning of subsection
(b)(2)(B)(ii) in search of a possible statutory new value
exception, the lesson of this drafting history is equivocal.
Although hornbook law has it that "'Congress does not intend
sub
silentio to enact statutory language that it has earlier
discarded,'"
INS v.
Cardoza-Fonseca, 480 U. S. 421, 442-443
(1987), the phrase "on account of" is not
silentium, and the
language passed by in this instance had never been in the bill
finally enacted, but only in predecessors that died on the vine.
None of these contained an explicit codification of the absolute
priority rule,21 and even in these earlier bills the language in
question stated an expansive new value concept, not the rule as
limited in the
Case dictum.22
The equivocal note of this drafting history is amplified by
another feature of the legislative advance toward the current law.
Any argument from drafting history has to account for the fact that
the Code does not codify any authoritative pre-Code version of the
absolute priority rule. Compare § 1129(b)(2)(B)(ii) ("[T]he holder
of any claim or interest that is junior to the claims of such
[impaired unsecured] class will not receive or retain under the
plan on account of such junior claim or interest any property")
with
Boyd, 228 U. S., at 508 ("[T]he creditors were entitled
to be paid before the stockholders could retain [a right of
property] for any purpose whatever"), and
Case, 308 U. S.,
at 116 (" '[C]reditors are entitled to priority over stockholders
against all the property of an insolvent corporation'" (quoting
Kansas City Terminal R. Co. v.
Central Union
20 While the earlier proposed bills contained provisions
requiring as a condition of confirmation that a plan be "fair and
equitable," none of them contained language explicitly codifying
the absolute priority rule. See,
22 See nn. 17-18,
supra.
449
Trust Co. of N.
Y., 271 U. S. 445, 455
(1926))). See H. R. Rep. No. 95-595, at 414 (characterizing §
1129(b)(2)(B)(ii) as a "partial codification of the absolute
priority rule"); ibid. ("The elements of the [fair and equitable]
test are new[,] departing from both the absolute priority rule and
the best interests of creditors tests found under the Bankruptcy
Act").
The upshot is that this history does nothing to disparage the
possibility apparent in the statutory text, that the absolute
priority rule now on the books as subsection (b)(2)(B)(ii) may
carry a new value corollary. Although there is no literal reference
to "new value" in the phrase "on account of such junior claim," the
phrase could arguably carry such an implication in modifying the
prohibition against receipt by junior claimants of any interest
under a plan while a senior class of unconsenting creditors goes
less than fully paid.
III
Three basic interpretations have been suggested for the "on
account of" modifier. The first reading is proposed by the
Partnership, that "on account of" harks back to accounting practice
and means something like "in exchange for," or "in satisfaction
of," Brief for Respondent 12-13, 15, n. 16. On this view, a plan
would not violate the absolute priority rule unless the old equity
holders received or retained property in exchange for the prior
interest, without any significant new contribution; if substantial
money passed from them as part of the deal, the prohibition of
subsection (b)(2)(B)(ii) would not stand in the way, and whatever
issues of fairness and equity there might otherwise be would not
implicate the "on account of" modifier.
This position is beset with troubles, the first one being
textual. Subsection (b)(2)(B)(ii) forbids not only receipt of
property on account of the prior interest but its retention as
well. See also §§ 1129(a)(7)(A)(ii), (a)(7)(B), (b)(2)(B)(i),
(b)(2)(C)(i), (b)(2)(C)(ii). A common instance of the latter
450
450 BANK OF AMERICA NAT. TRUST AND SAY. ASSN.
v. 203
NORTH LASALLE STREET PARTNERSHIP
would be a debtor's retention of an interest in the insolvent
business reorganized under the plan. Yet it would be exceedingly
odd to speak of "retain[ingJ" property in exchange for the same
property interest, and the eccentricity of such a reading is
underscored by the fact that elsewhere in the Code the drafters
chose to use the very phrase "in exchange for," § 1123(a)(5)(J) (a
plan shall provide adequate means for implementation, including
"issuance of securities of the debtor ... for cash, for property,
for existing securities, or in exchange for claims or interests").
It is unlikely that the drafters of legislation so long and
minutely contemplated as the 1978 Bankruptcy Code would have used
two distinctly different forms of words for the same purpose. See
Russello v.
United States, 464 U. S. 16, 23
(1983).
The second difficulty is practical: the unlikelihood that
Congress meant to impose a condition as manipulable as subsection
(b)(2)(B)(ii) would be if "on account of" meant to prohibit merely
an exchange unaccompanied by a substantial infusion of new funds
but permit one whenever substantial funds changed hands.
"Substantial" or "significant" or "considerable" or like
characterizations of a monetary contribution would measure it by
the Lord Chancellor's foot, and an absolute priority rule so
variable would not be much of an absolute. Of course it is true (as
already noted) that, even if old equity holders could displace the
rule by adding some significant amount of cash to the deal, it
would not follow that their plan would be entitled to adoption; a
contested plan would still need to satisfy the overriding condition
of fairness and equity. But that general fairness and equity
criterion would apply in any event, and one comes back to the
question why Congress would have bothered to add a separate
priority rule without a sharper edge.
Since the "in exchange for" reading merits rejection, the way is
open to recognize the more common understanding of "on account of"
to mean "because of." This is certainly the usage meant for the
phrase at other places in the stat-
451
ute, see § 1111(b)(1)(A) (treating certain claims as if the
holder of the claim "had recourse against the debtor on account of
such claim"); § 522(d)(10)(E) (permitting debtors to exempt
payments under certain benefit plans and contracts "on account of
illness, disability, death, age, or length of service"); §
547(b)(2) (authorizing trustee to avoid a transfer of an interest
of the debtor in property "for or on account of an antecedent debt
owed by the debtor"); § 547(c)(4)(B) (barring trustee from avoiding
a transfer when a creditor gives new value to the debtor "on
account of which new value the debtor did not make an otherwise
unavoidable transfer to ... such creditor"). So, under the
commonsense rule that a given phrase is meant to carry a given
concept in a single statute, see
Cohen v.
de la Cruz,
523 U. S. 213,
219220 (1998), the better reading of subsection (b)(2)(B)(ii)
recognizes that a causal relationship between holding the prior
claim or interest and receiving or retaining property is what
activates the absolute priority rule.
The degree of causation is the final bone of contention.
We understand the Government, as
amicus curiae, to take
the starchy position not only that any degree of causation between
earlier interests and retained property will activate the bar to a
plan providing for later property, Brief for United States as
Amicus Curiae 11-15, but also that whenever the holders of
equity in the Debtor end up with some property there will be some
causation; when old equity, and not someone on the street, gets
property the reason is
res ipsa loquitur. An old equity
holder simply cannot take property under a plan if creditors are
not paid in full.
Id., at 10-11, 18. See also Tr. of Oral
Arg. 28.23
23 Our interpretation of the Government's position in this
respect is informed by its view as
amicus curiae in the
Bonner Mall case: "the language and structure of the Code
prohibit in all circumstances confirmation of a plan that grants
the prior owners an equity interest in the reorganized debtor over
the objection of a class of unpaid unsecured claims." Brief for
United States as
Amicus Curiae in
United States
452
452 BANK OF AMERICA NAT. TRUST AND SAY. ASSN.
v. 203
NORTH LASALLE STREET PARTNERSHIP
There are, however, reasons counting against such a reading. If,
as is likely, the drafters were treating junior claimants or
interest holders as a class at this point (see
Ahlers, 485
U. S., at 202),24 then the simple way to have prohibited the old
interest holders from receiving anything over objection would have
been to omit the "on account of" phrase entirely from subsection
(b)(2)(B)(ii). On this assumption, reading the provision as a
blanket prohibition would leave "on account of" as a redundancy,
contrary to the interpretive obligation to try to give meaning to
all the statutory language. See,
e. g.,
Moskal v.
United States, 498 U. S. 103, 109-110
(1990);
United States v.
Menasche, 348 U. S. 528, 538-539
(1955).25 One would also have to ask why Congress
Bancorp Mortgage Co. v. Bonner Mall Partnership, O. T. 1993, No.
93714, p. 14.
The Government conceded that, in the case before us, it had no
need to press this more stringent view, since "whatever [the]
definition of 'on account of,' a 100 percent certainty that junior
equit[y] obtains property because they're junior equity will
satisfy that." See Tr. of Oral Arg. 29 (internal quotation marks
added).
24 It is possible, on the contrary, to argue on the basis of the
immediate text that the prohibition against receipt of an interest
"on account of" a prior unsecured claim or interest was meant to
indicate only that there is no
per se bar to such receipt by
a creditor holding both a senior secured claim and a junior
unsecured one, when the senior secured claim accounts for the
subsequent interest. This reading would of course eliminate the
phrase "on account of" as an express source of a new value
exception, but would leave open the possibility of interpreting the
absolute priority rule itself as stopping short of prohibiting a
new value transaction.
25 Given our obligation to give meaning to the "on account of"
modifier, we likewise do not rely on various statements in the
House Report or by the bill's floor leaders, which, when read out
of context, imply that Congress intended an emphatic, unconditional
absolute priority rule. See,
e. g., H. R. Rep. No. 95-595,
p. 224 (1977) ("[T]he bill requires that the plan pay any
dissenting class in full before any class junior to the dissenter
may be paid at all"); id., at 413 ("[I]f [an impaired class is]
paid less than in full, then no class junior may receive anything
under the plan"); 124 Congo Rec. 32408 (1978) (statement of Rep.
Edwards) (cramdown plan con-
453
would have desired to exclude prior equity categorically from
the class of potential owners following a cram down. Although we
have some doubt about the Court of Appeals's assumption (see 126 F.
3d, at 966, and n. 12) that prior equity is often the only source
of significant capital for reorganizations, see,
e. g., Blum
& Kaplan, The Absolute Priority Doctrine in Corporate
Reorganizations, 41 U. Chi. L. Rev. 651, 672 (1974); Mann, Strategy
and Force in the Liquidation of Secured Debt, 96 Mich. L. Rev. 159,
182-183, 192194, 208-209 (1997), old equity may well be in the best
position to make a go of the reorganized enterprise and so may be
the party most likely to work out an equity-for-value
reorganization.
A less absolute statutory prohibition would follow from reading
the "on account of" language as intended to reconcile the two
recognized policies underlying Chapter 11, of preserving going
concerns and maximizing property available to satisfy creditors,
see
Toibb v.
Radloff, 501 U. S. 157, 163
(1991). Causation between the old equity's holdings and subsequent
property substantial enough to disqualify a plan would presumably
occur on this view of things whenever old equity's later property
would come at a price that failed to provide the greatest possible
addition to the bankruptcy estate, and it would always come at a
price too low when the equity holders obtained or preserved an
ownership interest for less than someone else would have paid.26 A
truly full
firm able only "as long as no class junior to the dissenting
class receives anything at all"); id., at 34007 (statement of Sen.
DeConcini) (same).
26 Even when old equity would pay its top dollar and that figure
was as high as anyone else would pay, the price might still be too
low unless the old equity holders paid more than anyone else would
pay, on the theory that the "necessity" required to justify old
equity's participation in a new value plan is a necessity for the
participation of old equity as such. On this interpretation,
disproof of a bargain would not satisfy old equity's burden; it
would need to show that no one else would pay as much. See,
454
454 BANK OF AMERICA NAT. TRUST AND SAY. ASSN.
v. 203
NORTH LASALLE STREET PARTNERSHIP
value transaction, on the other hand, would pose no threat to
the bankruptcy estate not posed by any reorganization, provided of
course that the contribution be in cash or be realizable money's
worth, just as
Ahlers required for application of
Case's new value rule. Cf.
Ahlers, supra, at 203-205;
Case, 308 U. S., at 121.
IV
Which of these positions is ultimately entitled to prevail is
not to be decided here, however, for even on the latter view the
Bank's objection would require rejection of the plan at issue in
this case. It is doomed, we can say without necessarily exhausting
its flaws, by its provision for vesting equity in the reorganized
business in the Debtor's partners without extending an opportunity
to anyone else either to compete for that equity or to propose a
competing reorganization plan. Although the Debtor's exclusive
opportunity to propose a plan under § 1121(b) is not itself
"property" within the meaning of subsection (b)(2)(B)(ii), the
respondent partnership in this case has taken advantage of this
opportunity by proposing a plan under which the benefit of equity
ownership may be obtained by no one but old equity partners. Upon
the court's approval of that plan, the partners were in the same
position that they would have enjoyed had they exercised an
exclusive option under the plan to buy the equity in the
reorganized entity, or contracted to purchase it from a seller who
had first agreed to deal with no one else. It is quite true that
the escrow of the partners' proposed investment eliminated any
formal need to set out an express
e. g., In re Coltex Loop Central Three Partners, L. P.,
138 F.3d
39, 45 (CA2 1998) ("[O]ld equity must be willing to contribute
more money than any other source" (internal quotation marks and
citation omitted)); Strub, 111 Banking L. J., at 243 (old equity
must show that the reorganized entity "needs funds
from the
prior owner-managers because no other source of capital is
available"). No such issue is before us, and we emphasize that our
holding here does not suggest an exhaustive list of the
requirements of a proposed new value plan.
455
option or exclusive dealing provision in the plan itself, since
the court's approval that created the opportunity and the partners'
action to obtain its advantage were simultaneous. But before the
Debtor's plan was accepted no one else could propose an alternative
one, and after its acceptance no one else could obtain equity in
the reorganized entity. At the moment of the plan's approval the
Debtor's partners necessarily enjoyed an exclusive opportunity that
was in no economic sense distinguishable from the advantage of the
exclusively entitled offeror or option holder. This opportunity
should, first of all, be treated as an item of property in its own
right. Cf.
In re Coltex Loop Central Three Partners, L. P.,
138 F. 3d, at 43 (exclusive right to purchase postpetition equity
is itself property);
In re Bryson Properties, XVIII, 961 F.
2d, at 504;
Kham &
Nate's Shoes No.2, Inc. v.
First Bank, 908 F.2d
1351, 1360
(CA7 1990); D. Baird, The Elements of
Bankruptcy 261 (rev. ed. 1993) ("The right to get an equity
interest for its fair market value is 'property' as the word is
ordinarily used. Options to acquire an interest in a firm, even at
its market value, trade for a positive price"). While it may be
argued that the opportunity has no market value, being significant
only to old equity holders owing to their potential tax liability,
such an argument avails the Debtor nothing, for several reasons. It
is to avoid just such arguments that the law is settled that any
otherwise cognizable property interest must be treated as
sufficiently valuable to be recognized under the Bankruptcy Code.
See
Ahlers, 485 U. S., at 207-208. Even aside from that
rule, the assumption that no one but the Debtor's partners might
pay for such an opportunity would obviously support no inference
that it is valueless, let alone that it should not be treated as
property. And, finally, the source in the tax law of the
opportunity's value to the partners implies in no way that it lacks
value to others. It might, indeed, be valuable to another precisely
as a way to keep the Debtor from implementing a plan that would
avoid a Chapter 7 liquidation.
456
456 BANK OF AMERICA NAT. TRUST AND SAY. ASSN.
v. 203
NORTH LASALLE STREET PARTNERSHIP
Given that the opportunity is property of some value, the
question arises why old equity alone should obtain it, not to
mention at no cost whatever. The closest thing to an answer
favorable to the Debtor is that the old equity partners would be
given the opportunity in the expectation that in taking advantage
of it they would add the stated purchase price to the estate. See
Brief for Respondent 40-41. But this just begs the question why the
opportunity should be exclusive to the old equity holders. If the
price to be paid for the equity interest is the best obtainable,
old equity does not need the protection of exclusiveness (unless to
trump an equal offer from someone else); if it is not the best,
there is no apparent reason for giving old equity a bargain. There
is no reason, that is, unless the very purpose of the whole
transaction is, at least in part, to do old equity a favor. And
that, of course, is to say that old equity would obtain its
opportunity, and the resulting benefit, because of old equity's
prior interest within the meaning of subsection (b)(2)(B)(ii).
Hence it is that the exclusiveness of the opportunity, with its
protection against the market's scrutiny of the purchase price by
means of competing bids or even competing plan proposals, renders
the partners' right a property interest extended "on account of"
the old equity position and therefore subject to an unpaid senior
creditor class's objection.
It is no answer to this to say that the exclusive opportunity
should be treated merely as a detail of the broader transaction
that would follow its exercise, and that in this wider perspective
no favoritism may be inferred, since the old equity partners would
pay something, whereas no one else would pay anything. If this
argument were to carry the day, of course, old equity could obtain
a new property interest for a dime without being seen to receive
anything on account of its old position. But even if we assume that
old equity's plan would not be confirmed without satisfying the
judge that the purchase price was top dollar, there is a further
reason here not to treat property consisting of an exclusive
opportunity as subsumed within the total trans-
457
action proposed. On the interpretation assumed here, it would,
of course, be a fatal flaw if old equity acquired or retained the
property interest without paying full value. It would thus be
necessary for old equity to demonstrate its payment of top dollar,
but this it could not satisfactorily do when it would receive or
retain its property under a plan giving it exclusive rights and in
the absence of a competing plan of any sort.27 Under a plan
granting an exclusive right, making no provision for competing bids
or competing plans, any determination that the price was top dollar
would necessarily be made by a judge in bankruptcy court, whereas
the best way to determine value is exposure to a market. See Baird,
Elements of Bankruptcy, at 262; Bowers, Rehabilitation,
Redistribution or Dissipation: The Evidence for Choosing Among
Bankruptcy Hypotheses, 72 Wash. U. L. Q. 955, 959, 963, n. 34, 975
(1994); Markell, 44 Stan. L. Rev., at 73 ("Reorganization practice
illustrates that the presence of competing bidders for a debtor,
whether they are owners or not, tends to increase creditor
dividends"). This is a point of some significance, since it was,
after all, one of the Code's innovations to narrow the occasions
for courts to make valuation judgments, as shown by its preference
for the supramajoritarian class creditor voting scheme in §
1126(c), see
Ahlers, supra, at 207 ("[T]he Code provides
that it is up to the creditors-and not the courts-to accept or
reject a reorganization plan which fails to provide them adequate
protection or fails to honor the absolute priority rule").28 In the
interest of statutory coherence, a like dis-
27The dissent emphasizes the care taken by the Bankruptcy Judge
in examining the valuation evidence here, in arguing that there is
no occasion for us to consider the relationship between valuation
process and topdollar requirement.
Post, at 467, n. 7. While
we agree with the dissent as to the judge's conscientious handling
of the matter, the ensuing text of this opinion sets out our
reasons for thinking the Act calls for testing valuation by a
required process that was not followed here.
28 In
Ahlers, we explained: "The Court of Appeals may
well have believed that petitioners or other unsecured creditors
would be better off if respondents' reorganization plan was
confirmed. But that determi-
458
458 BANK OF AMERICA NAT. TRUST AND SAY. ASSN.
v. 203
NORTH LASALLE STREET PARTNERSHIP
THOMAS, J., concurring in judgment
favor for decisions untested by competitive choice ought to
extend to valuations in administering subsection (b)(2)(B)(ii) when
some form of market valuation may be available to test the adequacy
of an old equity holder's proposed contribution.
Whether a market test would require an opportunity to offer
competing plans or would be satisfied by a right to bid for the
same interest sought by old equity is a question we do not decide
here. It is enough to say, assuming a new value corollary, that
plans providing junior interest holders with exclusive
opportunities free from competition and without benefit of market
valuation fall within the prohibition of § 1129(b)(2)(B)(ii).
The judgment of the Court of Appeals, accordingly, is reversed,
and the case is remanded for further proceedings consistent with
this opinion.
It is so ordered.
JUSTICE THOMAS, with whom JUSTICE SCALIA joins, concurring in
the judgment.
I agree with the majority's conclusion that the reorganization
plan in this case could not be confirmed. However, I do
nation is for the creditors to make in the manner specified by
the Code. 11 U. S. C. § ll26(c). Here, the principal creditors
entitled to vote in the class of unsecured creditors (i.
e.,
petitioners) objected to the proposed reorganization. This was
their prerogative under the Code, and courts applying the Code must
effectuate their decision." 485 U. S., at 207. The voting rules of
Chapter 11 represent a stark departure from the requirements under
the old Act. "Congress adopted the view that creditors and equity
security holders are very often better judges of the debtor's
economic viability and their own economic self-interest than
courts, trustees, or the SEC .... Consistent with this new
approach, the Chapter 11 process relies on creditors and equity
holders to engage in negotiations toward resolution of their
interests." Brunstad, Sigal, & Schorling, Review of the
Proposals of the National Bankruptcy Review Commission Pertaining
to Business Bankruptcies: Part One, 53 Bus. Law. 1381, 1406, n. 136
(1998).
459
not see the need for its unnecessary speculations on certain
issues and do not share its approach to interpretation of the
Bankruptcy Code. I therefore concur only in the judgment.
I
Our precedents make clear that an analysis of any statute,
including the Bankruptcy Code, must not begin with external
sources, but with the text itself. See,
e. g.,
Connecticut Nat. Bank v.
Germain, 503 U. S. 249, 253-254
(1992);
Union Bank v.
Wolas, 502 U. S. 151, 154
(1991). The relevant Code provision in this case, 11 U. S. C. §
1129(b), does not expressly authorize prepetition equity holders to
receive or retain property in a reorganized entity in exchange for
an infusion of new capital.1 Instead, it is cast in general terms
and requires that, to be confirmed over the objections of an
impaired class of creditors, a reorganization plan be "fair and
equitable." § 1129(b)(1). With respect to an impaired class of
unsecured creditors, a plan can be fair and equitable only if, at a
minimum, it "provides that each holder of a claim of such class
receive or retain on account of such claim property of a value, as
of the effective date of the plan, equal to the allowed amount of
such claim," § 1129(b)(2)(B)(i), or if "the holder of any claim or
interest that is junior to the claims of such class will not
receive or retain under the plan on account of such junior claim or
interest any property," § 1129(b)(2)(B)(ii).
Neither condition is met here. The bank did not receive property
under the reorganization plan equal to the amount of its unsecured
deficiency claim. See
ante, at 439-440. Therefore, the plan
could not satisfy the first condition. With respect to the second
condition, the prepetition equity holders
1 In this respect, § 1129 differs from other provisions of the
Code, which permit owners to retain property before senior
creditors are paid. See,
e. g., 11 U. S. C. § 1225(b)(1)(B)
(allowing a debtor to retain nondisposable income); § 1325(b)(1)(B)
(same).
460
460 BANK OF AMERICA NAT. TRUST AND SAY. ASSN.
v. 203
NORTH LASALLE STREET PARTNERSHIP
THOMAS, J., concurring in judgment
received at least two forms of property under the plan: the
exclusive opportunity to obtain equity,
ante, at 454-458,
and an equity interest in the reorganized entity. The plan could
not be confirmed if the prepetition equity holders received any of
this property "on account of" their junior interest.
The meaning of the phrase "on account of" is the central
interpretive question presented by this case. This phrase obviously
denotes some type of causal relationship between the junior
interest and the property received or retainedsuch an
interpretation comports with common understandings of the phrase.
See,
e. g., Random House Dictionary of the English Language
13 (2d ed. 1987) ("by reason of," "because of"); Webster's Third
New International Dictionary 13 (1976) ("for the sake of," "by
reason of," "because of"). It also tracks the use of the phrase
elsewhere in the Code. See,
e. g., 11 U. S. C. §§ 365(f)(3),
510(b), 1111(b)(1)(A); see generally § 1129. Regardless of how
direct the causal nexus must be, the prepetition equity holders
here undoubtedly received at least one form of property-the
exclusive opportunity-"on account of" their prepetition equity
interest.
Ante, at 454. Since § 1129(b)(2)(B)(ii) prohibits
the prepetition equity holders from receiving "any" property under
the plan on account of their junior interest, this plan was not
"fair and equitable" and could not be confirmed. That conclusion,
as the majority recognizes, ibid., is sufficient to resolve this
case. Thus, its comments on the Government's position taken in
another case,
ante, at 451-454, and its speculations about
the desirability of a "market test,"
ante, at 457-458, are
dicta binding neither this Court nor the lower federal courts.
II
The majority also underestimates the need for a clear method for
interpreting the Bankruptcy Code. It extensively surveys pre-Code
practice and legislative history,
ante, at 444-449, but
fails to explain the relevance of these sources to the interpretive
question apart from the conclu-
461
sory assertion that the Code's language is "inexact" and the
history is "helpful,"
ante, at 444. This sort of approach to
interpretation of the Bankruptcy Code repeats a methodological
error committed by this Court in
Dewsnup v.
Timm,
502 U. S. 410
(1992).
In
Dewsnup, the Court held, based on pre-Code practice,
that § 506(d) of the Code prevented a Chapter 7 debtor from
stripping down a creditor's lien on real property to the judicially
determined value of the collateral.
Id., at 419-420. The
Court justified its reliance on such practice by finding the
provision ambiguous.
I d., at 416. Section 506 was
ambiguous, in the Court's view, simply because the litigants and
amici had offered competing interpretations of the statute.
Ibid. This is a remarkable and untenable methodology for
interpreting any statute. If litigants' differing positions
demonstrate statutory ambiguity, it is hard to imagine how any
provision of the Code-or any other statute-would escape
Dewsnup's broad sweep. A mere disagreement among litigants
over the meaning of a statute does not prove ambiguity; it usually
means that one of the litigants is simply wrong.
Dewsnup's
approach to statutory interpretation enables litigants to undermine
the Code by creating "ambiguous" statutory language and then
cramming into the Code any good idea that can be garnered from
pre-Code practice or legislative history.
The risks of relying on such practice in interpreting the
Bankruptcy Code, which seeks to bring an entire area of law under a
single, coherent statutory umbrella, are especially weighty. As we
previously have recognized, the Code "was intended to modernize the
bankruptcy laws, and as a result made significant changes in both
the substantive and procedural laws of bankruptcy."
United
States v.
Ron Pair Enterprises, Inc., 489 U. S. 235, 240 (1989)
(citation omitted). The Code's overall scheme often reflects
substantial departures from various pre-Code practices. Most
relevant to this case, the Code created a system of creditor class
ap-
462
462 BANK OF AMERICA NAT. TRUST AND SAY. ASSN.
v. 203
NORTH LASALLE STREET PARTNERSHIP
THOMAS, J., concurring in judgment
pro val of reorganization plans, unlike early pre-Code practice
where plan confirmation depended on unanimous creditor approval and
could be hijacked by a single holdout. See D. Baird, The Elements
of Bankruptcy 262 (rev. ed. 1993). Hence it makes little sense to
graft onto the Code concepts that were developed during a quite
different era of bankruptcy practice.
Even assuming the relevance of pre-Code practice in those rare
instances when the Code is truly ambiguous, see,
e. g.,
Midlantic Nat. Bank v.
New Jersey Dept. of Environmental
Protection, 474
U. S. 494, 501 (1986), and assuming that the language here is
ambiguous, surely the sparse history behind the new value exception
cannot inform the interpretation of § 1129(b)(2)(B)(ii). No holding
of this Court ever embraced the new value exception. As noted by
the majority,
ante, at 445, the leading decision suggesting
this possibility,
Case v.
Los Angeles Lumber Products
Co., 308 U. S.
106 (1939), did so in dictum. And, prior to the Code's
enactment, no court ever relied on the
Case dictum to
approve a plan. Given its questionable pedigree prior to the Code's
enactment, a concept developed in dictum and employed by lower
federal courts only
after the Code's enactment is simply not
relevant to interpreting this provision of the Code.2
This danger inherent in excessive reliance on pre-Code practice
did not escape the notice of the dissenting Justices in
Dewsnup who expressed "the greatest sympathy for the Courts
of Appeals who must predict which manner of statu-
2 Nor do I think that the history of rejected legislative
proposals bears on the proper interpretation of the phrase "on
account of." As an initial matter, such history is irrelevant for
the simple reason that Congress enacted the Code, not the
legislative history predating it. See
United States v.
Estate of Romani, 523 U. S. 517, 535-537
(1998) (SCALIA, J., concurring in part and concurring in judgment).
Even if this history had some relevance, it would not support the
view that Congress intended to insert a new value exception into
the phrase "on account of." On the contrary, Congress never acted
on bills that would have allowed nonmonetary new value
contributions.
Ante, at 446-447.
463
tory construction we shall use for the next Bankruptcy Code
case."
Dewsnup, supra, at 435 (SCALIA, J., joined by SouTER,
J., dissenting). Regrettably, subsequent decisions in the lower
courts have borne out the dissenters' fears. The methodological
confusion created by
Dewsnup has enshrouded both the Courts
of Appeals and, even more tellingly, Bankruptcy Courts, which must
interpret the Code on a daily basis.3 In the wake of
Dewsnup, the Fifth Circuit withdrew its decision on the new
value exception, prompting the author of the original opinion to
observe that
Dewsnup had clouded "[h]ow one should approach
issues of a statutory construction arising from the Bankruptcy
Code."
In re Greystone III
Joint Venture, 995 F.2d
1274, 1285
(CA5 1991) (Jones, J., dissenting).
Unfortunately, the approach taken today only thickens the fog.
JUSTICE STEVENS, dissenting.
Prior to the enactment of the Bankruptcy Reform Act of 1978,
this Court unequivocally stated that there are circumstances under
which stockholders may participate in a plan of reorganization of
an insolvent debtor if their participation is based on a
contribution in money, or in money's worth, reasonably equivalent
in view of all the circumstances
3 See,
e. g., In re Southeast Banking Corp., 156 F.3d
1114, 1123, n. 16 (CA111998);
In re Greystone III Joint
Venture, 995 F.2d
1274 (CA5 1991)
(per curiam) (vacating prior panel
decision regarding new value exception apparently in light of
Dewsnup); 995 F. 2d, at 1285 (Jones, J., dissenting);
In
re Kirchner, 216 B. R. 417, 418 (Bkrtcy. Ct. WD Wis. 1997);
In re Bowen, 174 B. R. 840, 852-853 (Bkrtcy. Ct. SD Ga.
1994);
In re Dever, 164 B. R. 132, 138 (Bkrtcy. Ct. CD Cal.
1994);
In re Mr. Gatti's, Inc., 162 B. R. 1004, 1010
(Bkrtcy. Ct. WD Tex. 1994);
In re Taffi, 144 B. R. 105,
112-113 (Bkrtcy. Ct. CD Cal. 1992), rev'd, 72 A. F. T. R. 2d ~
93-5408, p. 93-6607 (CD Cal. 1993), aff'd in part and rev'd in
part,
68 F.3d
306 (CA9 1995), aff'd as modified,
96 F.3d
1190 (CA9 1996) (en bane), cert. denied, 521 U. S. 1103 (1997);
In re A. V. B. I., Inc., 143 B. R. 738, 744-745 (Bkrtcy. Ct.
CD Cal. 1992), holding rejected by
In re Bonner Mall
Partnership, 2 F.3d
899, 912-913 (CA9 1993), cert. granted, 510 U. S. 1039, vacatur
denied and appeal dism'd as moot,
513 U. S. 18 (1994).
464
464 BANK OF AMERICA NAT. TRUST AND SAY. ASSN.
v. 203
NORTH LASALLE STREET PARTNERSHIP
STEVENS, J., dissenting
to their participation.1 As we have on two prior occasions,2 we
granted certiorari in this case to decide whether 11 U. s. C. §
1129(b)(2)(B)(ii) of the 1978 Act preserved or repealed this "new
value" component of the absolute priority rule. I believe the Court
should now definitively resolve the question and state that a
holder of a junior claim or interest does not receive property "on
account of" such a claim when its participation in the plan is
based on adequate new value.
The Court today wisely rejects the Government's "starchy"
position that an old equity holder can never receive an interest in
a reorganized venture as a result of a cramdown unless the
creditors are first paid in full.
Ante, at 451.3
Nevertheless, I find the Court's objections to the plan
1 As Justice Douglas explained in
Case v.
Los Angeles
Lumber Products Co.,
308 U. S. 106, 121-122
(1939) (footnote omitted):
"It is, of course, clear that there are circumstances under
which stockholders may participate in a plan of reorganization of
an insolvent debtor. This Court, as we have seen, indicated as much
in
Northern Pacific Ry. Co. v.
Boyd[, 228 U. S. 482 (1913),]
and
Kansas City Terminal Ry. Co. v.
Central Union Trust
Co.[, 271 U. S.
445 (1926)]. Especially in the latter case did this Court
stress the necessity, at times, of seeking new money 'essential to
the success of the undertaking' from the old stockholders. Where
that necessity exists and the old stockholders make a fresh
contribution and receive in return a participation reasonably
equivalent to their contribution, no objection can be made ....
"In view of these considerations we believe that to accord 'the
creditor his full right of priority against the corporate assets'
where the debtor is insolvent, the stockholder's participation must
be based on a contribution in money or in money's worth, reasonably
equivalent in view of all the circumstances to the participation of
the stockholder."
2 See Norwest Bank Worthington v. Ahlers,
485 U. S. 197, 203, n. 3
(1988); U. S. Bancorp Mortgage Co. v. Bonner Mall Partnership,
513 U. S. 18
(1994).
3 As I noted earlier, see n. 1,
supra, Justice Douglas
made this proposition clear in
Case v.
Los Angeles,
supra. Justice Douglas was a preeminent bankruptcy scholar,
well known for his views on the dangers posed by
management-controlled corporate reorganizations. Both his work on
the Protective Committee Study for the Securities and Exchange
Commis-
465
before us unsupported by either the text of § 1129(b)(2)(B)(ii)
or the record in this case. I would, therefore, affirm the judgment
of the Court of Appeals.
I
Section 1129 of Chapter 11 sets forth in detail the substantive
requirements that a reorganization plan must satisfy in order to
qualify for confirmation.4 In the case of dissenting creditor
classes, a plan must conform to the dictates of § 1129(b). With
only one exception, the requirements of §§ 1129(a) and 1129(b) are
identical for plans submitted by stockholders or junior creditors
and plans submitted by other parties. That exception is the
requirement in § 1129(b)(2)(B)(ii) that no holder of a junior claim
or interest may receive or retain any property "on account of such
junior claim or interest."
When read in the light of Justice Douglas' opinion in
Case v.
Los Angeles Lumber Products Co., 308 U. S. 106 (1939), the
meaning of this provision is perfectly clear. Whenever a junior
claimant receives or retains an interest for a bargain price, it
does so "on account of" its prior claim. On the other
sion and on Chapter X of the Bankruptcy Act sought to "restore
the integrity of the reorganization process" which "too often [was]
masterminded from behind the scenes by reorganization managers
allied with the corporation's management or its bankers." Jennings,
Mr. Justice Douglas: His Influence on Corporate and Securities
Regulation, 73 Yale L. J. 920, 935937 (1964). To this end, Douglas
placed special emphasis on the protection of creditors' rights in
reorganizations. Hopkirk, William O. Douglas-His Work in Policing
Bankruptcy Proceedings, 18 Vand. L. Rev. 663, 685 (1965). I find it
implausible that Congress, in enacting the Bankruptcy Code,
intended to be even more strict than Justice Douglas in limiting
the ability of debtors to participate in reorganizations.
4 "Confirmation of a plan of reorganization is the statutory
goal of every chapter 11 case. Section 1129 provides the
requirements for such confirmation, containing Congress' minimum
requirements for allowing an entity to discharge its unpaid debts
and continue its operations." 7 Collier on Bankruptcy ~ 1129.01, p.
1129-10 (rev. 15th ed. 1998).
466
466 BANK OF AMERICA NAT. TRUST AND SAY. ASSN.
v. 203
NORTH LASALLE STREET PARTNERSHIP
STEVENS, J., dissenting
hand, if the new capital that it invests has an equivalent or
greater value than its interest in the reorganized venture, it
should be equally clear that its participation is based on the fair
price being paid and that it is not "on account of" its old claim
or equity.
Of course, the fact that the proponents of a plan offer to pay a
fair price for the interest they seek to acquire or retain does not
necessarily mean that the bankruptcy judge should approve their
plan. Any proposed cramdown must satisfy all of the requirements of
§ 1129 including, most notably, the requirement that the plan be
"fair and equitable" to all creditors whose claims are impaired.
See § 1129(b)(1). Moreover, even if the old stockholders propose to
buy the debtor for a fair price, presumably their plan should not
be approved if a third party, perhaps motivated by unique tax or
competitive considerations, is willing to pay an even higher price.
Cf. § 1129(c).
In every reorganization case, serious questions concerning the
value of the debtor's assets must be resolved.5 Nevertheless, for
the purpose of answering the legal question presented by the
parties to this case, I believe that we should assume that all
valuation questions have been correctly answered. If, for example,
there had been a widely advertised auction in which numerous
bidders participated, and if the plan proposed by respondents had
been more favorable by a wide margin than any competing proposal,
would § 1129(b)(2)(B)(ii) require rejection of their plan simply
because it provides that they shall retain 100% of the equity?
Petitioner and the Government would reply "yes" because they
think § 1129(b)(2)(B)(ii) imposes an absolute ban on participation
by junior claimants without the consent of all senior creditors.
The Court correctly rejects this extreme position because it would
make the words "on account of"
5 See Warren, A Theory of Absolute Priority, 1991 Ann. Survey
Am. L. 9, 13 ("In practice, no problem in bankruptcy is more vexing
than the problem of valuation").
467
superfluous, and because there is no plausible reason why
Congress would have desired such a categorical exclusion, given
that in some cases old equity may be the most likely source of new
capital. See
ante, at 452-453. Indeed, the dissenting judge
in the Court of Appeals thought "such a result would border on the
absurd." 6 Thus, neither the dissenting judge in the Court of
Appeals nor the Court appears to be in doubt about the proper
answer to my hypothetical question. Instead, the decision is
apparently driven by doubts concerning the procedures followed by
the Bankruptcy Judge in making his value determinations, implicitly
suggesting that the statute should be construed to require some
form of competitive bidding in cases like this.7 See
ante,
at 456-458.
Perhaps such a procedural requirement would be a wise addition
to the statute, but it is surely not contained in the
6Judge Kanne wrote in dissent: "Perhaps the majority's reasoning
is driven by the fear that a 'but for' interpretation would prevent
old equity from ever participating in a reorganized
entity-something Congress could never have intended. Indeed, such a
result would border on the absurd, but a simpler, 'but for'
causation requirement would not preclude junior interests from
participating in a reorganized entity. If prior equity holders earn
their shares in an open auction, for example, their received
interests would not be 'on account of' their junior interests but
'on account of' their capital contributions."
In re 203 N
LaSalle Street Partnership, 126 F.3d
955, 972 (CA7 1997).
It would seem logical for adherents of this view also to find
participation by junior interests in the new entity not "on account
of" their prior interest, if it were stipulated that old equity's
capital contributions exceeded the amount attainable in an auction,
or if findings to that effect were not challenged.
7 This doubt is unwarranted in this case. The bank does not
challenge the Bankruptcy Court's finding that the 15 floors of
office space had a market value of $55.8 million. The bank's
original expert testimony on the value of the property differed
from the Bankruptcy Judge's finding by only 2.8%.
In re 203 N
LaSalle Street Partnership, 190 B. R. 567, 573576 (Bkrtcy. Ct.
ND Ill. 1995). Therefore, although the bank argues that the policy
implications of the "new value debate" revolve around judicial
determinations of the valuation of the relevant collateral, Brief
for Petitioner 5, n. 2, this concern was neither squarely presented
in this case nor preserved for our review.
468
468 BANK OF AMERICA NAT. TRUST AND SAY. ASSN.
v. 203
NORTH LASALLE STREET PARTNERSHIP
STEVENS, J., dissenting
present text of § 1129(b)(2)(B)(ii). Indeed, that subsection is
not a procedural provision at all. Section 1129 defines the
substantive elements that must be met to render plans eligible for
confirmation by the bankruptcy judge after all required statutory
procedures have been completed. Cf. § 1121 (Who may file a plan); §
1122 (Classification of claims or interests); § 1125 (Postpetition
disclosure and solicitation); § 1126 (Acceptance of plan); § 1127
(Modification of plan). Because, as I discuss below, petitioner
does not now challenge either the procedures followed by the
Bankruptcy Judge or any of his value determinations, neither the
record nor the text of § 1129(b)(2)(B)(ii) provides any support for
the Court's disposition of this case.
II
As I understand the Court's opinion, it relies on two reasons
for refusing to approve the plan at this stage of the proceedings:
one based on the plan itself and the other on the confirmation
procedures followed before the plan was adopted. In the Court's
view, the fatal flaw in the plan proposed by respondent was that it
vested complete ownership in the former partners immediately upon
confirmation,
ante, at 454, and the defect in the process
was that no other party had an opportunity to propose a competing
plan.
These requirements are neither explicitly nor implicitly
dictated by the text of the statute. As for the first objection, if
we assume that the partners paid a fair price for what the Court
characterizes as their "exclusive opportunity," I do not understand
why the retention of a 100% interest in assets is any more "on
account of" their prior position than retaining a lesser percentage
might have been. Surely there is no legal significance to the fact
that immediately after the confirmation of the plan "the partners
were in the same position that they would have enjoyed had they
exercised an exclusive option under the plan to buy the equity
469
in the reorganized entity, or contracted to purchase it from a
seller who had first agreed to deal with no one else."
Ibid.
As to the second objection, petitioner does not challenge the
Bankruptcy Judge's valuation of the property or any of his other
findings under § 1129 (other than the plan's compliance with §
1129(b)(2)(B)(ii)). Since there is no remaining question as to
value, both the former partners (and the creditors, for that
matter) are in the same position that they would have enjoyed if
the Bankruptcy Court had held an auction in which this plan had
been determined to be the best available. That the court did not
hold such an auction should not doom this plan, because no such
auction was requested by any of the parties, and the statute does
not require that an auction be held. As with all the provisions of
§ 1129, the question of compliance with § 1129(b)(2)(B)(ii) turns
on the substantive content of the plan, not on speculation about
the procedures that might have preceded its confirmation.
In this case, the partners had the exclusive right to propose a
reorganization plan during the first 120 days after filing for
bankruptcy. See § 1121(b). No one contends that that exclusive
right is a form of property that is retained by the debtor "on
account of" its prior status.8 The partners did indeed propose a
plan which provided for an infusion of $6.125 million in new
capital in exchange for ownership of the reorganized debtor. Since
the tax value of the partnership depended on their exclusive
participation, it is unsurprising that the partners' plan did not
propose that unidentified outsiders should also be able to own an
unspecified portion of the reorganized partnership. It seems both
practically and economically puzzling to assume that Congress would
have expected old equity to provide for the participa-
8 Indeed, as the Court acknowledges,
ante, at 454, it is
not "property" within the meaning of the Act.
470
470 BANK OF AMERICA NAT. TRUST AND SAY. ASSN.
v. 203
NORTH LASALLE STREET PARTNERSHIP
STEVENS, J., dissenting
tion of unknown third parties, who would have interests
different from (and perhaps incompatible with) the partners', in
order to comply with § 1129(b)(2)(B)(ii).9
Nevertheless, even after proposing their plan, the partners had
no vested right to purchase an equity interest in the
postreorganization enterprise until the Bankruptcy Judge confirmed
the plan. They also had no assurance that the court would refuse to
truncate the exclusivity period and allow other interested parties
to file competing plans. As it turned out, the Bankruptcy Judge did
not allow respondent to file its proposed plan, but the bank did
not appeal that issue, and the question is not before us.10
The moment the judge did confirm the partners' plan, the old
equity holders were required by law to implement the terms of the
planY It was then, and only then, that what
9 It goes without saying that Congress could not have expected
the partners' plan to include a provision that would allow for the
Bankruptcy Judge to entertain competing plans, since that is a
discretionary decision exclusively within the province of the
court. See § 1121(d).
10 Apparently, the bank's plan called for liquidation of the
property. In order to flesh out all facts bearing on value, perhaps
the Bankruptcy Judge should have terminated the exclusivity period
and allowed the bank to file its plan. That the bank's plan called
for liquidation of the property in a single-asset context does not
necessarily contravene the purposes of Chapter 11. See,
e. g.,
In re River Village Associates, 181 B. R. 795, 805 (ED Pa.
1995).
11 Section 1141(a) states: "Except as provided in subsections
(d)(2) and (d)(3) of this section, the provisions of a confirmed
plan bind the debtor, any entity issuing securities under the plan,
any entity acquiring property under the plan, and any creditor,
equity security holder, or general partner in the debtor, whether
or not the claim or interest of such creditor, equity security
holder, or general partner is impaired under the plan and whether
or not such creditor, equity security holder, or general partner
has accepted the plan."
See 8 Collier on Bankruptcy ~ 1141.02, at 1141-4 to 1141-5.
("Section 1141(a) of the Code provides that a plan is binding upon
all parties once it is confirmed. Under this provision, subject to
compliance with the requirements of due process under the Fifth
Amendment, a confirmed plan
471
the Court characterizes as the critical "exclusive opportunity"
came into existence. What the Court refuses to recognize, however,
is that this "exclusive opportunity" is the function of the
procedural features of this case: the statutory exclusivity period,
the Bankruptcy Judge's refusal to allow the bank to file a
competing plan, and the inescapable fact that the judge could
confirm only one plan.
The Court's repeated references to the partners' "opportunity,"
see
ante, at 454, 455, 456, is potentially misleading
because it ignores the fact that a plan is binding upon all parties
once it is confirmed. One can, of course, refer to contractual
rights and duties as "opportunities," but they are not separate
property interests comparable to an option that gives its holder a
legal right either to enter into a contract or not to do so. They
are simply a part of the bundle of contractual terms that have
legal significance when a plan is confirmed.
When the court approved the plan, it accepted an offer by old
equity. If the value of the debtor's assets has been accurately
determined, the fairness of such an offer should be judged by the
same standard as offers made by newcomers. Of course, its offer
should not receive more favorable consideration "on account of"
their prior ownership. But if the debtor's plan would be entitled
to approval if it had been submitted by a third party, it should
not be disqualified simply because it did not include a unique
provision that would
of reorganization is binding upon every entity that holds a
claim or interest ... "); see also § 1142(a).
In this case, the plan provided: "The general partners and
limited partners of the Reorganized Debtor shall contribute or
cause to be contributed $6.125 million of new capital (the 'New
Capital') to the Reorganized Debtor as follows: $3.0 million in
cash ('Initial Capital') on the first business banking day after
the Effective Date, and $625,000 on each of the next five
anniversaries of the Effective Date." App. 38-39. The "Effective
Date" of the plan was defined as "[t]he first business day after
the Confirmation Order is entered on the docket sheet maintained
for the Case."
Id., at 24.
472
472 BANK OF AMERICA NAT. TRUST AND SAY. ASSN.
v. 203
NORTH LASALLE STREET PARTNERSHIP
STEVENS, J., dissenting
not be required in an offer made by any other party, including
the creditors.
Since the Court of Appeals correctly interpreted §
1129(b)(2)(B)(ii), its judgment should be affirmed.
Accordingly, I respectfully dissent.
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