Justice Scalia writing for eight member of the Court (notice of Justice Kennedy’s recusal came the morning of oral arguments) went out of his way to deny that past practice under the Bankruptcy Act need be considered to justify the Court’s conclusion that credit bidding must be permitted under the Code: “As for pre-Code practices, they can be relevant to the interpretation of an ambiguous text, but we find no textual ambiguity here.” That two Courts of Appeal had concluded otherwise garnered not a mention (the Fifth Circuit in Pacific Lumber and the Third in Philadelphia Newspapers). I was disappointed by the failure of the Court to address pre-Code practice and not only because a nifty history of that practice was one of the burdens of the Professors’ Brief. Without the context of the 1976 Pine Gate decision, which had denied a secured lender the right to credit bid and which, in turn, led to the enactment of Bankruptcy Code § 365(k) explicitly preserving the right in pre-confirmation sales, and the long history of credit bidding, the Court’s claim of “no textual ambiguity” sounds more like an ipse dixit than a reasoned conclusion.
Less disappointing but a bit disconcerting was Justice Scalia’s statement that “the pros and cons of credit-bidding are for the consideration of Congress, not the courts.” Well, yes but how far does Congressional power extend when it comes to eliminating credit bidding? (Although I hardly anticipate this or any future Congress would be likely to do so.) The second (and, frankly, more interesting) argument in the Professors’ Brief was that eliminating secured lenders’ rights to credit bid would be unconstitutional. Not that I expected the Court to pick up this line of argument but I would have preferred that it not expressly leave the question open for subsequent Congressional muddling. On the other hand, plenty of others disagree that credit bidding is a right to property protected by the Fifth Amendment so the Court’s snippet of dicta will keep the argument open.
Most Court watchers knew the debtor was in for a particularly tough time when the Solicitor General moved to intervene on behalf of the lenders. I wonder how many times the SG has been on the losing side in a bankruptcy case? And the SG’s argument caught the Court’s attention: “That right [to credit bid] is particularly important for the Federal Government, which is frequently a secured creditor in bankruptcy and which often lacks appropriations authority to throw good money after bad in a cash-only bankruptcy auction.” If you’re a legal realist, this is the nub of the Court’s “no textual ambiguity” interpretive bent. To permit a plan of reorganization to deny the right to credit bid would be to open the door to sales over the objection of the federal government. And, unlike private lenders who frequently have the wherewithal to pony up enough cash to bid up to the amount of their loans (like in Philadelphia Newspapers), federal agencies simply do not have the power to do so. To hope for the Court to cut off its co-equal branches like this was a lot for the debtor to expect.
Scott Pryor
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