In an 8-0 decision, the United States Supreme Court today held that secured creditors have the right to "credit bid" -- that is, to bid what is owed them -- when a debtor proposes to sell the secured creditor's collateral free and clear of the creditor's lien in a Chapter 11 bankruptcy plan of reorganization. The case is RadLAX Gateway Hotel, LLC v. Amalgamated Bank, No. 11-166.
"Today's decision protects the benefits of a secured creditor's bargain," stated Deanne Maynard of Morrison & Foerster, who argued for the secured creditor, Amalgamated Bank, in her 13th argument before the Supreme Court. "A secured creditor bargains for the right to be repaid in full or, if not, to foreclose and take possession of its collateral. The Court's decision will ensure that secured creditors have the ability to protect that bargain in bankruptcy. If the price for which its collateral is being sold in a bankruptcy auction is too low, the secured creditor can bid what it is owed and take possession of its collateral."
"We are pleased that the Court vindicated the rights of our client in this three-year-old case," said Adam Lewis, Amalgamated's lead bankruptcy attorney on the matter. "We are also gratified that the Court, in finding that a secured creditor must be given the right to credit bid in a plan sale free and clear of liens, has preserved the historic right of a secured creditor in bankruptcy cases as elsewhere to its money or its collateral. Debtors will not be able to use such a plan sale to shift value from the secured creditor to other interests, such as the debtor's preferred bidder or insiders."
Morrison & Foerster successfully represented respondent Amalgamated Bank. The Morrison & Foerster appellate team was Deanne Maynard, Adam Lewis, Norman Rosenbaum, Brian Matsui, Erica Richards, Marc Hearron and John Pintarelli.