Can(n)onading Radlax

As Stephen noted, the Supreme Court has decided the RadLAX case. Although I suspect I won't be the only Credit Slips blogger to comment on the case, I had a few thoughts on the interpretive methods instead of the result. In a short opinion, the Court reached the correct results in what was an easy case. Stephen is absolutely right to describe the lower courts who reached contrary conclusions as "aggressively wrong."

For nonspecialists, bankruptcy experts will excuse a bit of background on the case, which revolved around the right of a creditor to "credit bid" in an asset sale as part of a chapter 11 plan. Outside of bankruptcy, at a foreclosure sale for example, the creditor can simply bid the amount of their debt. If the bank is owed $100,000, it can simply bid the $100,000 debt at the foreclosure sale. Anyone else who wants the property must bid more than $100,000, in cash, thereby paying the bank in full.

In RadLAX, the bank was owed around $120 million, and the debtor's chapter 11 plan proposed to sell the property securing the loan in an auction. The initial price from a "stalking horse" bidder was $55 million. Not surprisingly, the bank was less than thrilled and wanted to be able to credit bid at the auction. That way, the bank could assure the property did not sell for less than what the bank thought the property was worth. The bank could have bid cash at the auction, but then it would have had to raise a not-insubstantial sum of cash, paying the associated fees to do so, only to have the cash returned to it as payments through the chapter 11 plan. And, that is what was at stake in RadLAX--whether the debtor could use chapter 11 to get some bargaining leverage it would not have outside of bankruptcy.

Because the bank would not vote for the debtor's plan without credit bidding, the debtor had to use the provisions of the Bankruptcy Code that allow a court to confirm a plan over the objection of a secured creditor like the bank. Paraphrasing, those provisions state the court can confirm the plan if:

1. The bank will be given the collateral,
2. The debtor will sell the property at a sale at which the creditor can credit bid, or
3. The bank gets the "indubitable equivalent" of its collateral.

Seizing on the "or," the debtor essentially said, "We choose option 3, which includes the right to sell property without giving the creditor the right to credit bid." The phrase "indubitable equivalent" is an old bankruptcy term of art for something that is similar to the original collateral. As I tell my students, it is not quite "indubitable" or "equivalent," but in theory something close to it.

The idea that the general phrasing in option 3 allowed the debtor to do something specifically forbidden by option 2 was an ungrammatical and hyper-technical reading against common sense. Writing for a unanimous Court, Justice Scalia rests principally on a canon of construction that general language in a statute cannot override something specifically prohbiited elsewhere. Although bankruptcy scholars had written a lot--and even submitted some amicus briefs--about the history or purpose of credit bidding, the Scalia made short work of those arguments noting that whatever the merits of credit bidding, Congress had spoken.

Scalia's intellectual move of seizing upon a statutory canon of construction is a classic move for his personal interpretive approach. Scalia is a textualist, looking only to the words of a statute, but he is not a naive textualist. He does not believe that words only have one meaning on which everyone would agree. In Scalia's approach, canons can provide neutral rules that can miinimize the idiosyncractic rulings that might happen as judges simply look to statutes and apply their own personal meanings to words. Importantly, clear canons of construction provide advance notice to Congress of how their words will be interpreted. Thus, canons play an important role in Scalia's worldview of having a government of laws, not men. None of this analysis is to suggest that I agree with Scalia's textualism, but rather that I see RadLAX as a piece of Scalia's larger interpretive work, which is an important part of the legacy he has left the legal profession.

Moving to an entirely different perspective, perhaps the most important part of the RadLAX opinion is footnote 2. There, Scalia notes that the United States government has many secured loans through its various programs, and it has an important interest in being able to credit bid because it often lacks the appropriations authority to bid cash in a particular case. In his brief, the Solicitor General made a point of stressing the government's interest in the case.

Although the government's interest may not be important in Scalia's interpretive approach, it probably was an important factor to other justices. The Solicitor General often files briefs in bankruptcy cases, and when he does, it is often to represent the government's interest as a creditor. One should question whether the Solicitor General should solely consider the governmetn's fiscal interest when taking sides in a bankruptcy case before the Supreme Court, as Katie has discussed. And, the Solicitor General's views are often very important to the justices. Thus, RadLAX goes down as another bankruptcy decision where the Solicitor General put a thumb on the scale in favor of creditor interests. Sometimes, as in RadLAX, this is even the right side of the case.