David Zachary v. California Bank & Trust

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
DAVID K. ZACHARY; ANNMARIE S. No. 13-16402
SNORSKY,
Debtors-Appellants, D.C. No.
2:11-bk-42866
v.
CALIFORNIA BANK & TRUST, OPINION
Respondent-Appellee.
Appeal from the United States Bankruptcy Court
for the Eastern District of California
Thomas C. Holman, Bankruptcy Judge, Presiding
Argued and Submitted
October 21, 2015—Stanford Law School, California
Filed January 28, 2016
Before: Richard A. Paez, Mary H. Murguia,
and Andrew D. Hurwitz, Circuit Judges.
Opinion by Judge Hurwitz
2 ZACHARY V. CALIFORNIA BANK & TRUST
SUMMARY *
Bankruptcy
Affirming the bankruptcy court’s order sustaining an
objection to a chapter 11 plan of reorganization, the panel
held that the absolute priority rule in 11 U.S.C.
§ 1129(b)(2)(B)(ii)―providing that a dissenting class of
unsecured creditors must be provided for in full before an
individual debtor can retain any property under a
reorganization plan―continues to apply following the
amendments to the Bankruptcy Code enacted as part of the
Bankruptcy Abuse Prevention and Consumer Protection
Act.
Following other circuits, the panel overruled In re
Friedman, 466 B.R. 471 (9th Cir. BAP 2012), and adopted
the “narrow view” that the BAPCPA amendments merely
have the effect of allowing individual chapter 11 debtors to
retain property and earnings acquired after the
commencement of the case that would otherwise be
excluded under § 541(a)(6) & (7). Thus, an individual
debtor may not “cram down” a plan that would permit the
debtor to retain prepetition property that is not excluded
from the estate by § 541, but may cram down a plan that
permits the debtor to retain only postpetition property.
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
ZACHARY V. CALIFORNIA BANK & TRUST 3
COUNSEL
Gregg W. Koechlein (argued), Reno, Nevada, for Debtors-
Appellants.
Matthew D. Murphey (argued), Penelope Parmes, Martin W.
Taylor, Meghan Canty Sherrill, Troutman Sanders LLP,
Irvine, California, for Respondent-Appellee.
OPINION
HURWITZ, Circuit Judge:
This case presents an arcane but important question of
first impression in this Circuit: Does the absolute priority
rule continue to apply in individual chapter 11
reorganizations after the amendments to the Bankruptcy
Code enacted as part of the Bankruptcy Abuse Prevention
and Consumer Protection Act of 2005 (“BAPCPA”)? We
hold that it does.
I. Factual and Procedural Background
In September 2011, David K. Zachary and Annmarie S.
Snorsky (“Debtors”) filed a joint voluntary individual
chapter 11 petition. The Debtors’ operative plan of
reorganization placed their largest unsecured creditor,
California Bank & Trust (“California Bank”), into its own
class of unsecured creditors and proposed to pay it $5,000
on its claim of nearly $2,000,000. California Bank’s claim
was thus “impaired under the plan.” 11 U.S.C.
§ 1129(a)(8)(B).
California Bank objected, arguing that the plan violated
the so-called absolute priority rule of 11 U.S.C.
4 ZACHARY V. CALIFORNIA BANK & TRUST
§ 1129(b)(2)(B)(ii). The bankruptcy judge, disagreeing with
the Ninth Circuit Bankruptcy Appellate Panel (“BAP”)
opinion in In re Friedman, 466 B.R. 471 (B.A.P. 9th Cir.
2012), sustained the objection, holding that “the absolute
priority rule still prevails” in individual chapter 11
bankruptcies after the enactment of BAPCPA. 1
Debtors filed a timely notice of appeal of the bankruptcy
court’s order sustaining California Bank’s objection to their
plan. The bankruptcy court certified the appeal, and this
Court authorized a direct appeal. 28 U.S.C. § 158(a),
(d)(2)(A).
II. Discussion
We review “de novo the bankruptcy court’s and the
BAP’s interpretations of the bankruptcy statute.” In re
Boyajian, 564 F.3d 1088, 1090 (9th Cir. 2009). “A party
contending that legislative action changed settled law has the
burden of showing that the legislature intended such a
change.” Green v. Bock Laundry Mach. Co., 490 U.S. 504,
521 (1989).
1
Debtors argue that In re Windmill Farms, Inc., 70 B.R. 618 (B.A.P. 9th
Cir. 1987), rev’d on other grounds, 841 F.2d 1467, 1474 (9th Cir. 1988),
“held that BAP decisions were binding on all bankruptcy courts in this
circuit,” and the bankruptcy court here was required to follow In re
Friedman. Because we must today address the continued applicability
of the absolute priority rule regardless of the precedential effect of BAP
opinions, we pretermit consideration of the issue. Cf. Bank of Maui v.
Estate Analysis, Inc., 904 F.2d 470, 472 (9th Cir. 1990) (O’Scannlain, J.,
specially concurring) (discussing need for judicial council action to make
BAP decisions binding on all bankruptcy courts within the circuit).
ZACHARY V. CALIFORNIA BANK & TRUST 5
A. Individual chapter 11 bankruptcies and the
absolute priority rule.
“Individual debtors have two basic options under the
Code.” Ice House Am., LLC v. Cardin, 751 F.3d 734, 736
(6th Cir. 2014). They can either liquidate their non-exempt
assets under chapter 7, or file for reorganization under
chapters 11 or 13. See 11 U.S.C. §§ 701–84, 1101–46,
1301–30. A chapter 13 reorganization, however, is only
available to individual debtors whose debts fall below
certain limits. See 11 U.S.C. § 109(e). Individual debtors
with more debt can only file for reorganization under chapter
11, which is “used primarily by debtors with ongoing
businesses.” Toibb v. Radloff, 501 U.S. 157, 163 (1991)
(emphasis omitted).
An individual filing under chapter 11 may confirm a plan
of reorganization in one of two ways. The first is by
satisfying the bankruptcy court that a plan complies with
each of the sixteen paragraphs in 11 U.S.C. § 1129(a).
Under this path, “[o]f particular note is the requirement of
obtaining the consent of each class of creditor as required by
paragraph (8) of § 1129(a).” In re Friedman, 466 B.R. at
480. Absent unanimous approval of the plan by each class
of creditors, a debtor must pursue the second path to
confirmation.
Under the second path, a debtor can obtain confirmation
by satisfying the bankruptcy court that, notwithstanding any
creditor’s objections, the plan is “fair and equitable” to each
creditor class. 11 U.S.C. § 1129(b)(1), (2). Because this
“nonconsensual method of confirmation” is obtained over
creditor objection, it is known as a “cramdown.” In re
Friedman, 466 B.R. at 480. A debtor may cram down a plan
only if it complies with the absolute priority rule in
§ 1129(b)(2)(B)(ii). Put another way, a bankruptcy judge
6 ZACHARY V. CALIFORNIA BANK & TRUST
may find that a debtor’s plan is “fair and equitable” to an
objecting creditor only if the plan complies with the absolute
priority rule.
The absolute priority rule is a “judicially created
concept,” with its genesis in “early twentieth-century
railroad cases.” In re Friedman, 466 B.R. at 478. It arose
from the Bankruptcy Code’s statutory requirement, now
codified in 11 U.S.C. § 1129(b)(2), that a reorganization
plan be “fair and equitable” to each class of creditors. The
rule “provides that a dissenting class of unsecured creditors
must be provided for in full before any junior class can
receive or retain any property under a reorganization plan.”
Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 202
(1988) (alteration omitted) (quoting In re Ahlers, 794 F.2d
388, 401 (8th Cir. 1986)). “The U.S. Supreme Court adopted
the absolute priority rule to prevent deals between senior
creditors and equity holders that would impose unfair terms
on unsecured creditors.” In re Friedman, 466 B.R. at 478;
see also N. Pac. Ry. Co. v. Boyd, 228 U.S. 482, 503–04
(1913). The rule later “gained express statutory force, and
was incorporated into Chapter 11 of the Bankruptcy Code
adopted in 1978” as 11 U.S.C. § 1129(b)(2)(B)(ii). Norwest,
485 U.S. at 202.
Before the adoption of BAPCPA in 2005, it was clear
that “no Chapter 11 reorganization plan can be confirmed
over the creditors’ legitimate objections (absent certain
conditions not relevant here) if it fails to comply with the
absolute priority rule.” Id. At that time, the absolute priority
rule provided:
[T]he condition that a plan be fair and
equitable with respect to a class [of creditors]
includes the following requirements:
ZACHARY V. CALIFORNIA BANK & TRUST 7
....
(B) With respect to a class of unsecured
claims–
(i) the plan 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; or
(ii) 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.
11 U.S.C. § 1129(b)(2)(B)(ii) (1994) (emphasis added).
Thus, under the pre-BAPCPA Bankruptcy Code, it was clear
that “every unsecured creditor must be paid in full before the
debtor can retain ‘any property’ under a plan.” Ice House,
751 F.3d at 737 (quoting 11 U.S.C. § 1129(b)(2)(B)(ii)).
B. Amendment of the absolute priority rule by
BAPCPA.
Three provisions of the post-BAPCPA Bankruptcy Code
intertwine to implement the absolute priority rule. First,
§ 541, which was not altered by BAPCPA, defines an estate
in bankruptcy as “comprised of all” the property enumerated
in that section, “wherever located and by whomever held,”
including “all legal or equitable interests of the debtor in
property as of the commencement of the case.” 11 U.S.C.
§ 541(a), (a)(1) (emphasis added). Under this section, the
“property of the estate,” and, therefore, the property subject
8 ZACHARY V. CALIFORNIA BANK & TRUST
to the absolute priority rule in chapter 11 cases, is “the
property the debtor owned ‘as of the commencement of the
case.’” Ice House, 751 F.3d at 737–38 (quoting 11 U.S.C.
§ 541(a)(1)).
The second relevant provision is § 1115, which was
added in 2005 by BAPCPA. Pub. L. No. 109-8, § 321, 119
Stat. 23, 94–95 (2005). Section 1115, which only applies to
individual chapter 11 proceedings, adds to the § 541
“property of the estate” certain property obtained by the
debtor “after the commencement of the case”:
In a case in which the debtor is an individual,
property of the estate includes, in addition to
the property specified in section 541–
(1) all property of the kind specified in
section 541 that the debtor acquires after
the commencement of the case but before
the case is closed, dismissed, or
converted to a case under chapter 7, 12,
or 13, whichever occurs first; and
(2) earnings from services performed by
the debtor after the commencement of the
case but before the case is closed,
dismissed, or converted to a case under
chapter 7, 12, or 13, whichever occurs
first.
11 U.S.C. § 1115(a) (emphasis added).
Finally, BAPCPA amended the absolutely priority rule
itself, adding the underscored language to
§ 1129(b)(2)(B)(ii):
ZACHARY V. CALIFORNIA BANK & TRUST 9
[T]he condition that a plan be fair and
equitable with respect to a class [of creditors]
includes the following requirements:
....
(B) With respect to a class of unsecured
claims–
(i) the plan 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; or
(ii) 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, except
that in a case in which the debtor is
an individual, the debtor may retain
property included in the estate under
section 1115, subject to the
requirements of subsection (a)(14) of
this section.
Pub. L. No. 109-8, § 321, 119 Stat. 23, 95 (emphasis added).
The new clauses in subsection (B)(ii) plainly create an
exception to the absolute priority rule that applies only to a
chapter 11 “case in which the debtor is an individual.”
11 U.S.C. § 1129(b)(2)(B)(ii). But the question is, what is
the exception’s scope? Or, put another way, what property
may an individual chapter 11 debtor retain “without running
10 ZACHARY V. CALIFORNIA BANK & TRUST
afoul of the absolute priority rule”? In re Friedman, 466
B.R. at 487 (Jury, Bankr. J., dissenting).
C. Post-BAPCPA case law.
“A significant split of authorities has developed
nationally among the bankruptcy courts” regarding the
answer to this question. In re Maharaj, 681 F.3d 558, 563
(4th Cir. 2012) (describing division). Two conflicting
positions have emerged: the “broad view” and the “narrow
view.” Id.
Courts applying the broad view hold that
by including in § 1129(b)(2)(B)(ii) a cross-
reference to § 1115 (which in turn references
§ 541, the provision that defines the property
of a bankruptcy estate), Congress intended to
include the entirety of the bankruptcy estate
as property that the individual debtor may
retain, thus effectively abrogating the
absolute priority rule in Chapter 11 for
individual debtors.
Id. Under this view, an individual debtor is entitled to retain
most prepetition and postpetition property and nonetheless
cram down a plan over an unsecured creditor’s objection.
See, e.g., In re Friedman, 466 B.R. at 482; In re Anderson,
No. 11-61845-11, 2012 WL 3133895, at *7 n.6 (Bankr. D.
Mont. Aug. 1, 2012); In re Shat, 424 B.R. 854, 868 (Bankr.
D. Nev. 2010); In re Roedemeier, 374 B.R. 264, 276 (Bankr.
D. Kan. 2007).
Courts applying the narrow view instead hold “that the
BAPCPA amendments merely have the effect of allowing
individual Chapter 11 debtors to retain property and earnings
ZACHARY V. CALIFORNIA BANK & TRUST 11
acquired after the commencement of the case that would
otherwise be excluded under § 541(a)(6) & (7).” In re
Maharaj, 681 F.3d at 563. Under this view, an individual
debtor may not cram down a plan that would permit the
debtor to retain prepetition property that is not excluded
from the estate by § 541, but may cram down a plan that
permits the debtor to retain only postpetition property.
A split panel of the Ninth Circuit BAP accepted the
broad view in In re Friedman, 466 B.R. at 484. But, all of
our sister circuits that have considered the issue have
adopted the narrow view, 2 as have a sizeable majority of the
district, bankruptcy appellate, and bankruptcy courts. 3 We
2
See Ice House, 751 F.3d at 740 (“We therefore hold that the absolute-
priority rule continues to apply to pre-petition property of individual
debtors in Chapter 11 cases.”); In re Lively, 717 F.3d 406, 410 (5th Cir.
2013) (“The absolute priority rule, in particular, has been a cornerstone
of equitable distribution for Chapter 11 creditors for over a century. We
must presume Congress was well aware of that rule and, in the absence
of a clearer directive, modified § 1129(b)(2)(B)(ii) in order to refine it,
not reverse it, for individual debtors.”); In re Stephens, 704 F.3d 1279,
1287 (10th Cir. 2013) (“[W]e decline to find an implied repeal [of the
absolute priority rule] here.”); In re Maharaj, 681 F.3d at 575 (“[W]e
believe that Congress did not intend to abrogate the absolute priority rule
for individual Chapter 11 debtors.”).
3
See, e.g., In re Woodward, 537 B.R. 894, 901 (B.A.P. 8th Cir. 2015);
In re Brown, 505 B.R. 638, 648-49 (E.D. Pa. 2014); In re Tucker,
479 B.R. 873, 877-78 (Bankr. D. Or. 2012); In re Arnold, 471 B.R. 578,
613-14 (Bankr. C.D. Cal. 2012); In re Borton, No. 09-00196-TLM, 2011
WL 5439285, at *4 (Bankr. D. Idaho Nov. 9, 2011); In re Kamell, 451
B.R. 505, 512 (Bankr. C.D. Cal. 2011); In re Draiman, 450 B.R. 777,
821 (Bankr. N.D. Ill. 2011); In re Stephens, 445 B.R. 816, 820-21
(Bankr. S.D. Tex. 2011); In re Karlovich, 456 B.R. 677, 682 (Bankr.
S.D. Cal. 2010); and In re Gbadebo, 431 B.R. 222, 230 (Bankr. N.D.
Cal. 2010). But see, e.g., In re Friedman, 466 B.R. at 482; In re
12 ZACHARY V. CALIFORNIA BANK & TRUST
today agree with our sister circuits and overrule In re
Friedman.
D. Interpretation of the BAPCPA amendments.
BAPCPA added § 1115 as an entirely new provision of
the Bankruptcy Code. That section “expands the definition
of ‘property of the estate’ in Chapter 11 cases to include, for
the first time, property obtained by the debtor ‘after the
commencement of the case.’ And all of that property, absent
some other amendment to the Code, would be subject to the
absolute-priority rule.” Ice House, 751 F.3d at 738 (quoting
11 U.S.C. § 1115(a)(1), (2)). The new language in
§ 1129(b)(2)(B)(ii) added by BAPCPA obviously creates
“an exception to the absolute-priority rule,” but less obvious
is “the exception’s scope.” Id. The key to that question is
determining what the word “included” means in the phrase
of § 1129(b)(2)(B)(ii) stating that “the debtor may retain
property included in the estate under section 1115.”
The Friedman majority determined:
“Included” is not a word of limitation. To
limit the scope of estate property in §§ 1129
and 1115 would require the statute to read
“included, except for the property set out in
Section 541” (in the case of
§ 1129(b)(2)(B)(ii)), and “in addition to, but
not inclusive of the property described in
Section 541” (in the case of § 1115).
Anderson, 2012 WL 3133895, at *7 n.6; In re Shat, 424 B.R. at 868; and
In re Roedemeier, 374 B.R. at 276.
ZACHARY V. CALIFORNIA BANK & TRUST 13
466 B.R. at 482 (footnote omitted). In contrast, the Sixth
Circuit’s opinion in Ice House held:
The critical language in § 1129(b)(2)(B)(ii) is
that “the debtor may retain property included
in the estate under section 1115.” And the
key word within that language is “included.”
“Include” is a transitive verb, which means it
“shows action, either upon someone or
something.” Shertzer, Elements of Grammar
26 (1986). The action described by “include”
is either “to take in as a part, an element, or a
member” (first definition) or “to contain as a
subsidiary or subordinate element” (second
definition). The American Heritage
Dictionary 913 (3d ed. 1992). The first
definition (“to take in”) describes genuine
action—grabbing something and making a
part of a larger whole—whereas the second
definition (“to contain”) lends itself, more
dryly, to a description of things that are
already there— “the duties of a fiduciary
include. . . .” The first definition is plainly
the better fit in § 1129(b)(2)(B)(ii):
converted into the active voice,
§ 1129(b)(2)(B)(ii) refers to property that
§ 1115 includes in the estate, which naturally
reads as “property that § 1115 takes into the
estate,” rather than as “property that § 1115
contains in the estate.” Thus—employing
this definition and converted into the active
voice—§ 1129(b)(2)(B)(ii) provides that “the
debtor may retain property that § 1115 takes
into the estate.”
14 ZACHARY V. CALIFORNIA BANK & TRUST
Ice House, 751 F.3d at 738–39 (alterations omitted). Under
this reading, “what § 1115 takes into the estate is property
‘that the debtor acquires after the commencement of the
case,’” and it is only “that property” that “‘the debtor may
retain’ when his unsecured creditors are not fully paid.” Id.
at 739 (quoting 11 U.S.C. §§ 1115(a), 1129(b)(2)(B)(ii))
(internal punctuation omitted).
We agree with the Sixth Circuit. Section 1115 and the
new clauses in § 1129(b)(2)(B)(ii) were both added by
BAPCPA. Reading these two provisions as defining a new
class of property that is exempt from the absolute priority
rule nicely harmonizes the new provisions. 4 See In re Lively,
717 F.3d 406, 409 (5th Cir. 2013) (“[W]e are inclined to
4
Some courts and commentators have suggested that the cross-reference
in the second new clause in § 1129(b)(2)(B)(ii) to § 1129(a)(14), a
provision involving domestic support obligations, is a scrivener’s error
and was meant to refer to § 1129(a)(15), which involves a new “best
efforts” requirement added to chapter 11 by BAPCPA. See, e.g., In re
Lucarelli, 517 B.R. 42, 47 n.2 (Bankr. D. Conn. 2014); In re Lively, 467
B.R. 884, 890 n.3 (Bankr. S.D. Tex. 2012); In re Shat, 424 B.R. at 860
n.21; Ralph Brubaker, The Absolute Priority Rule for Individual Chapter
11 Debtors: To Be or Not to Be?, 32 No. 10 Bankr. L. Letter, at 5 (Oct.
2012) (“[A]s all fully recognize, the cross-reference in the absolute
priority rule amendment to § 1129(a)(14) (dealing with full payment of
domestic support obligations) was obviously a drafting error.”). We
need not decide that issue today. We note that although the reference to
(a)(14) may have been a scrivener’s error, it is “not an entirely absurd
mixup. . . . One could easily assume that Congress wished to protect
domestic support creditors by not allowing a debtor to keep any
postpetition earnings—a form of Section 1115 property—so long as any
domestic support obligation was not current.” In re Shat, 424 B.R. at
860 n.21.
ZACHARY V. CALIFORNIA BANK & TRUST 15
agree with the bankruptcy court in this case that the ‘narrow’
interpretation is unambiguous and correct.”).
The history of the absolute priority rule also strongly
supports the narrow view. Congress repealed the absolute
priority rule in 1952, only to reinstate it in 1978,
demonstrating that when it intends to abrogate the rule, it
knows how to do so explicitly. Compare H.R. Rep. No. 82-
2320 (1952), reprinted in 1952 U.S.C.C.A.N. 1960, 1981–
82, with Bankruptcy Code of 1978, Pub. L. No. 95-598,
§ 1129, 92 Stat. 2549, 2635–38 (codified in scattered
sections of 11 and 28 U.S.C.). 5 More importantly, the
5
The legislative history of the BAPCPA also bolsters the view that
Congress did not intend to repeal the absolute priority rule. The
Judiciary Committee Report describes “various consumer protection
reforms” in BAPCPA, such as penalizing “a creditor who unreasonably
refuses to negotiate” and requiring certain credit solicitations to “include
enhanced consumer disclosures.” H.R. Rep. No. 109-31(I), pt. 1, at 2
(2005), reprinted in 2005 U.S.C.C.A.N. 88, 89. But this list of
protections does not include any supposed repeal of the absolute priority
rule. It seems unlikely that Congress would address a cornerstone rule
of bankruptcy practice “in the most oblique way possible, and yet omit
any mention of this remedy from the legislative history.” In re Maharaj,
681 F.3d at 575; see also Dewsnup v. Timm, 502 U.S. 410, 419 (1992)
(“Furthermore, this Court has been reluctant to accept arguments that
would interpret the [Bankruptcy] Code, however vague the particular
language under consideration might be, to effect a major change in pre-
Code practice that is not the subject of at least some discussion in the
legislative history.”); In re Bonner Mall P’ship, 2 F.3d 899, 913 (9th Cir.
1993) (“Where the text of the Code does not unambiguously abrogate
pre-Code practice, courts should presume that Congress intended it to
continue unless the legislative history dictates a contrary result.”) (citing
Dewsnup, 502 U.S. at 419). It also seems unlikely that Congress would
facilitate cramdowns, typically objected to by creditors, in an act
designed “to correct perceived abuses of the bankruptcy system.”
Ransom v. FIA Card Servs., 562 U.S. 61, 64 (2011) (quoting Milavetz,
16 ZACHARY V. CALIFORNIA BANK & TRUST
Supreme Court has expressly warned against finding implied
repeal of provisions of the Bankruptcy Code. United Sav.
Ass’n of Tex. v. Timbers of Inwood Forest Assocs., Ltd., 484
U.S. 365, 380 (1988) (“Such a major change in the existing
rules would not likely have been made without specific
provision in the text of the statute; it is most improbable that
it would have been made without even any mention in the
legislative history.”) (citation omitted); see also In re
Maharaj, 681 F.3d at 571 (“The canon against implied
repeal is particularly strong in the field of bankruptcy law.”).
Courts adopting the broad view have stressed that
“Congress in adopting BAPCPA’s individual debtor chapter
11 provisions borrowed provisions from chapter 13,” which
does not have an absolute priority rule. In re Friedman, 466
B.R. at 483 (comparing, inter alia, §§ 1123(a)(8) and
1322(a)(1), §§ 1141(d)(5)(A) and 1328(a), and §§ 1127(e)
and 1329(a)); see also In re Shat, 424 B.R. at 868 (noting
“the host of change[s] to chapter 11 with respect to
individuals, all made with the goal of shaping an individual’s
chapter 11 case to look like a chapter 13 case”); In re
Roedemeier, 374 B.R. at 275 (“Many of the BAPCPA’s
changes to Chapter 11 apply only to individual debtors and
are clearly drawn from the Chapter 13 model.”). But if the
BAPCPA amendments were intended to abrogate the
absolute priority rule for chapter 11 individual debtors,
Congress could have achieved that goal in a far more
straightforward manner. Instead of adding language to
§ 1129(b)(2)(B)(ii), Congress simply could have made that
provision inapplicable to individual chapter 11
Gallop & Milavetz, P.A. v. United States, 559 U.S. 229, 231-32 (2010));
see also In re Friedman, 466 B.R. at 490 (Jury, Bankr. J., dissenting)
(“[T]he purpose behind BAPCPA was to have debtors pay more, not
less.”).
ZACHARY V. CALIFORNIA BANK & TRUST 17
reorganizations. See In re Lively, 717 F.3d at 410
(describing broad view as “a startling, and most indirect,
way for Congress to have effected partial implicit repeal of
the very provision that the section amended”). Or Congress
could have raised the debt limits for chapter 13 cases,
ushering more individuals into that regime. See In re
Maharaj, 681 F.3d at 573 (“Congress could have effected
the changes that Debtors argue it sought in a far less
awkward and convoluted manner by simply raising the
Chapter 13 debt limits and making additional individuals
eligible to proceed under that chapter.”); see also Midlantic
Nat’l Bank v. N.J. Dep’t of Envtl. Prot., 474 U.S. 494, 501
(1986) (“The normal rule of statutory construction is that if
Congress intends for legislation to change the interpretation
of a judicially created concept, it makes that intent specific.
The Court has followed this rule with particular care in
construing the scope of bankruptcy codifications.”) (citation
omitted).
We acknowledge that retaining the absolute priority rule
in chapter 11 cases works a “double whammy” on a debtor
because, under the BAPCPA amendments to § 1129(a)(15),
he “must dedicate at least five years’ disposable income to
the payment of unsecured creditors, and—unlike a debtor in
Chapter 13—is also subject to the absolute-priority rule (and
thus cannot retain any pre-petition property) if he does not
pay those creditors in full.” Ice House, 751 F.3d at 740. But
the broad view could exact a heavy penalty on a “crammed
down” creditor, as this case illustrates. Our task is not to
balance the equities, however, but to interpret the
Bankruptcy Code. See Norwest, 485 U.S. at 209 (noting that
relief from any unfairness in the statutory scheme “cannot
come from a miscontruction of the applicable bankruptcy
laws, but rather, only from action by Congress”). We
18 ZACHARY V. CALIFORNIA BANK & TRUST
conclude today that the BAPCPA amendments do not
impliedly repeal the long-standing absolute priority rule.
CONCLUSION
The order of the bankruptcy court sustaining California
Bank’s objection to the Debtors’ plan is AFFIRMED.