All posts in Absolute Priority Rule

Individual Chapter 11 Plans – So I Learned a Few Things at NACBA

I had a good time at the annual NACBA meeting last weekend in San Fran.  I did a program on individual chapter 11 cases with Judge Laurel Davis from Las Vegas and bankruptcy pundit Wayne Silver from San Jose.    We decided to let the audience, which was quite substantial, ask questions and I definitely learned a few things.

One big lesson was about whether plans must be five years, in other words, whether the individual must pay his net disposable income into the plan for five years.  It sure seems to say that in Section 1129(a)(15).  I know that it is required only “when a creditor objects,” but I sort of assumed that less that five years would bring an objection so it should be presumed to be five years.  There was a question about whether a “no” vote on the plan by an unsecured creditor is an “objection” but we obviously did not resolve that.   Read more…

Report About Oral Argument In re Zachary

Michael St. James sent out the below very nice and thoughtful email.  I sure hope he’s wrong.  I sent it to Judge Jury with the comment that I hope he is wrong.  Her comment was we disagree about that.  By the way, you can watch the oral argument here.    (Thanks to Judge Kwan for reminding me of that).

From: “Michael St. James” []
Sent: Wednesday, October 21, 2015 4:08 PM
To: M. Jonathan Hayes;
Subject: [Bankr-L] Ninth Circuit Oral Argument: Absolute Priority Rule in Individual Chapter 11 Cases

Based on Mr. Hayes’ email, below, on October 21, 2015 I attended oral argument before the Ninth Circuit in Zachary, a direct appeal from the Bankruptcy Court (E.D. Cal., Holman, J.) addressing whether the absolute priority rule applied in individual Chapter 11 cases.  Read more…

9th Circuit Panel Chosen for In re Zachary

The 9th Circuit has finally chosen the three justices who will hear In re Zachary.   They are Richard Paez, Mary Murguia, and  Andrew Hurwitz.  Judge Paez wrote the Bellingham decision and I think is a friend of bankruptcy debtors.  Mary Murguia was appointed by Obama in 2011.  She is one of seven children of parents who emigrated from Mexico in 1950.  Andrew Hurwitz is also an Obama appointee from 2011.  He successfully represented several death row inmates before the Supreme Court in Ring v. Arizona getting a ruling that juries rather than judges make the factual determinations of whether there is aggravating circumstances to merit the death penalty.

I like this panel.  I am rooting of course for affirmation of In re Friedman.  Oral argument is 10/21 at Stanford.

9th Circuit to Finally Hear In re Zachary, Does Absolute Priority Rule Apply in Individual Cases? (No, says I)

In re Zachary has finally been set for oral argument.  Zachary is the case that deals with whether or not the absolute priority rule applies in individual chapter 11 cases.

The Notice of Appeal was filed 7/11/2013!  Briefing was completed on 12/10/2013.

08/13/2015  24  Notice of Oral Argument on Wednesday, October 21, 2015 – 09:30 A.M. – CA Stanford Sch Moot Courtroom – Stanford U CA.View the Oral Argument Calendar for your case here.[9645858] (GEV) [Entered: 08/13/2015 11:27 AM]

Judge Riblet on the Absolute Priority Rule, Again

The last time we checked, Judge Riblet in Santa Barbara was firmly on the fence regarding the Absolute Priority Rule (see post here).  Since then, I have had a disclosure statement hearing where she made her views very clear.

First of all, she says that she believes that the Friedman case (466 B.R. 471) is dispositive for her: she must follow it.  The case comes from the 9th Circuit Bankruptcy Appellate Panel, not the 9th Circuit itself, and there is some uncertainty whether a bankruptcy judge must follow BAP precedent the same way that she would follow the circuit court.  Judge Riblet admits no uncertainty here: she follows the BAP.

However, that doesn’t mean she likes it.  She urged my opponent to appeal her order if and when she confirms my client’s plan, because she said she wants to see Friedman overturned and have the Absolute Priority Rule apply to individual debtors as well as business debtors.

The objecting creditor has stated that he has authority to appeal this question to the Supreme Court.  Any debtors’ attorneys out there that want to help me out on this?

Judge Riblet on the Absolute Priority Rule

The Absolute Priority Rule is an arcane part of the Bankruptcy Code (see 11 USC § 1129(b)(2)(B)(ii)).  It basically says that in a Chapter 11 plan, lower classes of creditors cannot be paid anything unless higher classes have either been paid in full or consent to their treatment.  As an example, I have a debtor who is trying to confirm a plan that pays $200,000 to his unsecured creditors, but allows him to keep all his properties.  Because one of the unsecured creditors strenuously objects to the $200,000 payment as too little, the plan violates the Absolute Priority Rule – the debtor is a lower class of creditor than the unsecured creditors.

In 2005, Congress passed BAPCPA, which changed some of the language regarding this rule in an ambiguous (and again arcane) way.  Some courts have found that the change abrogates the rule with respect to individual debtors; others have found that it did nothing of the sort.  See here for a discussion of how the language change worked.

I had a hearing on a disclosure statement before Judge Riblet, of Santa Barbara, today.  In the past, she has always talked as if the Absolute Priority Rule applies to debtors – “why on earth wouldn’t it?” she once asked me at a hearing where the rule was not yet at issue.

Today, she came down firmly on the fence.  She said that she had only discovered the Friedman case (In re Friedman, 466 B.R. 471 (9th Cir. BAP 2012) in the last month, and read the Fourth Circuit’s take on the Absolute Priority Rule (In re Maharaj, 681 F.3d 558 (4th Cir. 2012)) even more recently.  She pointed out that neither was precedential for her.  She insisted that, when the issue comes up, counsel be well-versed in both cases.  She did not tip her hand in suggesting which she found more persuasive.

So unfortunately we still do not know which way this judge, one of the last in the Central District to deal with the issue, will rule.

LACBA Program: Absolute Priority Rule for Individual Chapter 11 Cases

Absolute Priority Rule for Individual Chapter 11 Cases

A distinguished panel of four Central District bankruptcy judges and two
highly regarded Chapter 11 bankruptcy practitioners discuss and debate the
current hot topic in bankruptcy law of whether the 2005 bankruptcy act
abolished the absolute priority rule for individuals in Chapter 11 cases. If
it didn’t, does this mean the end of Chapter 11 for individuals? If it did,
does this give individuals too good of a deal in Chapter 11?

Hon. Alan M. Ahart, US Bankruptcy Court
Hon. Theodor C. Albert, U.S. Bankruptcy Court
Hon. Scott C. Clarkson, U.S. Bankruptcy Court
Stanley E. Goldich, Pachulski Stang Ziehl & Jones
Hon. Robert Kwan, U. S. Bankruptcy Court
David Shemano, Peitzman Weg LLP

Moderated By: David A. Tilem, L/O Of David A Tilem

Read more…

Bankruptcy Prof. Ralph Brubaker Takes Apart Absolute Priority Rule Narrow View

Here’s the background:

On Nov 8 the LACBA is doing an evening debate on the Absolute Priority Rule in Individual Chapter 11 Cases, with participating bankruptcy judges Albert, Ahart, Clarkson and Kwan.  Here’s an interesting update —

Professor Ralph Brubaker of University of Ill. School of Law yesterday published a blistering deconstructive analysis of the narrow view interpretation of the Absolute Priority Rule as it applies to individual chapter 11 debtors at 32 No. 10 Bankruptcy Law Letter 1 entitled, The Absolute Priority Rule for Individual Chapter 11 Debtors: To Be or Not to Be?  It is officially published on Oct. 15, 2012 (but appears on Westlaw now).  He obliterates the narrow view and opines that the 9th Cir. BAP’s In re Friedman was spot on (way to go Scott Clarkson by the way).

It is a magnum opus on the misconceptions being held by those asserting the narrow view, and calls those who adopt the narrow view as having invented a new canon of statutory interpretation called the “Jam it to the Debtor Good and Hard” Canon.  Anyone who knows Brubaker’s work and background will appreciate the significance of this article.  Brubaker is one of the leading authors of Bankruptcy Law textbooks in the nation.

Prof. Brubaker’s article is a MUST READ for anyone wanting to understand the debate.

LACBA Commercial Law and Bankruptcy Program on Absolute Priority Rule in Individual Cases (I assume this will clear everything up!)

Absolute Priority Rule for Individual Chapter 11 Cases
Thursday, November 8, 2012 Registration: 5:30 PM

Dinner: 5:30 PM – 6:30 PM

Program: 6:00 PM – 8:00 PM
Omni Los Angeles Hotel
251 South Olive Street
Los Angeles, California 90012

2.0 hrs CLE Credit Program Information: Please join us for this review of bankruptcy cases decided in 2011-2012 by the Ninth Circuit Court of Appeals.

Hon. Alan M. Ahart, U.S. Bankruptcy Court
Hon. Theodor C. Albert, U.S. Bankruptcy Court
Hon. Scott C. Clarkson, U.S. Bankruptcy Court
Stanley E. Goldich, Pachulski Stang Ziehl & Jones
Hon. Robert R. Kwan, U. S. Bankruptcy Court
David Shemano, Peitzman Weg LLP

Registration Information CLE+ Members (meal not included) FREE Law Students with meal $45.00 CLE+ Plus Members with meal $60.00 Commercial Law & Bankruptcy Committee Section Members $100.00 LACBA Members with meal $120.00 All Others with meal $150.00 2hr CLE Credit Registration Code: 011802

Read more…


ABSOLUTE ROULETTE — The Absolute Priority Rule in Individual Chapter 11 Cases.

Excuse the gambling references please — I wrote this in conjunction with the September, 2012 ABI event in Las Vegas.