On Monday, President Trump nominated Judge Brett Kavanaugh from the D.C. Circuit Court of Appeals to fill Justice Anthony Kennedy’s soon to be vacant seat on the U.S. Supreme Court. Like Judge Merrick Garland, former President Obama’s last nominee, and unlike now-Justice Neil Gorsuch, President Trump’s first nominee, Judge Kavanaugh rarely encounters bankruptcy issues. That’s the D.C. Circuit for you.

Whereas former contender Judge Thomas Hardiman has written 14 bankruptcy opinions and former contender Judge Raymond Kethledge has written 12 bankruptcy opinions (including the Ice House opinion, one of the few Circuit-level absolute priority rule opinions), Judge Kavanaugh has a single bankruptcy opinion among his 311 opinions: Smith v. First Am. Title Ins. Co. (In re Stevenson), a quaint D.C. state law equitable subrogation case that is narrowly interesting even if it’s not very revealing about Judge Kavenaugh’s judicial philosophy. In fairness, former contender Judge Amy Barrett, with only 10 opinions to her name, has 0 bankruptcy opinions.

So, once again, we’re first on the bankruptcy scene but with little to add to the noise that is this week’s Kavanaugh coverage. However, we did locate one heartening tidbit. Specifically, much has been discussed about Judge Kavanaugh’s dissent in Sissel v. U.S. Dep’t of Health & Human Servs, an Affordable Care Act case. It’s only fitting, then, that Judge Kavanaugh concluded his 31 page dissent with an amusing quote from and footnote cite to Wellness:

“To read my opinion so far, you might wonder whether I think the world will end not in fire, or in ice, or in a bankruptcy court, but in an Origination Clause violation. I of course realize there are more important constitutional issues. This case is not Marbury v. Madison redux. But the case is still quite important.”

It’s not as much fun as Justice Gorsuch’s “30 Year Old Pontiac Trans Am” case, but we’ll take it for now.

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We’ve had a slow start in 2018 and figured that we’d get back to basics with First National Bank of Oneida v. Brandt, an Eleventh Circuit Court of Appeals Chapter 11 confirmation decision from last month. Ultimately, the Court remanded to the district court on one issue: what’s the impact on a confirmed individual Chapter 11 plan of a § 349 dismissal of the bankruptcy case without a discharge? Even more simply, does a dismissal of the bankruptcy case vacate a prior confirmed plan in an individual case? We think not but the Court left open the issue. Here’s how it went down:


Brandt filed an individual Chapter 11 case back in 2009. On the petition date, he owed $1.3 million in secured real estate debt to Oneida. Oneida filed multiple proofs of claims, each asserting that Oneida was oversecured. Brandt didn’t object to the claims. As a part of Brandt’s confirmed Chapter 11 plan, he classified all of Oneida’s real estate loans in a single class to the extent that they were allowed as secured claims under § 506. He also signed a post-petition note for $150,000 to cover post-petition interest. And he had a separate deficiency class requiring secured claimants to assert their entitlement, if any, to an unsecured deficiency claim within 30 days after the confirmation hearing. Oneida never made that assertion.

Brandt defaulted under the plan a year or so later. Oneida obtained stay relief–it appears that the bankruptcy court kept the case open pending completion of plan payments. Oneida then sold the collateral, applied the $150,000 in proceeds to the debt, and sought a deficiency judgment of over $1 million. After a few rounds, the district court dismissed the deficiency suit for the pre-petition amounts on the basis that Oneida, having failed to assert its entitlement to a deficiency claim in compliance with the plan, had no deficiency claim on those amounts and was limited to enforcing the post-petition note.

Oneida appealed to the Eleventh Circuit. However, after the appeal had been fully briefed, but before the Court could rule, Brandt sought and obtained the dismissal of his bankruptcy case, all without a discharge of his debts. Recognizing that the dismissal might materially impact the issues on appeal, the Court remanded the matter to the district court to determine the impact of the case dismissal on the confirmed plan. However, the Court did give the district court some food for thought on that issue.


First, it recognized that a confirmed plan is binding on the debtor and his creditors under § 1141 in much the same way that a contract is binding.

Second, it recognized that a plan typically subsumes a pre-petition debt and creates a new contract between the parties–but see below.

Third, whereas a confirmed plan in a corporate case results in an immediate discharge of pre-petition debt, an individual discharge must, after the 2005 changes to § 1141, await completion of plan payments.

Fourth, Brandt dismissed his Chapter 11 case before completing his plan payments or receiving a discharge.

Thus, the issue: in an individual case, does § 349’s emphasis on returning matters to the status quo vacate a prior confirmed plan upon dismissal of the case? The Court cites Jevic in support of its conclusion that returning the parties to their pre-petition status is the emphasis of § 349.

The Court acknowledges that § 349 doesn’t explicitly state that a dismissal vacates a prior confirmed plan, but leaves the issue for the district court to decide.


Although we acknowledge that individuals don’t get discharges until they complete their plan payments, we’re skeptical about whether a dismissal order would vacate a prior confirmation order, particularly given that such result is not spelled out in § 349, which is very specific. (Click the link for a reminder of the explicit impacts of a dismissal).  That said, the Court analogized to Chapter 13 cases, the dismissal of which cases appears to undo the Chapter 13 plan. The Court thought so, at least. As readers of this blog know, courts frequently analogize to Chapter 13 when struggling with many of the unresolved issues in individual Chapter 11 cases.

Ultimately, the safest route to avoid any doubt is for the bankruptcy court to use § 349(b) to, “for cause,” limit the dismissal in a manner that explicitly preserves the plan while permitting the dismissal. Alternatively or simultaneously, the court could also provide in the confirmation order–in the same way that sale orders often protect against § 349–that a dismissal will not revoke the confirmation order or render the plan unenforceable. To be sure, the issue of individual cases lingering post-confirmation is an important issue. In Georgia, for example, the bankruptcy courts will often “administratively close” the individual case after confirmation so as to freeze reporting and UST payments pending completion of plan payments. There is no dismissal outright and the Chapter 11 plan is implemented. The debtor will then come back, after finishing his payments, and reopen the case to seek a discharge. Although it is not evident what Brandt’s confirmation or dismissal orders provided, he may have put himself on less than square footing for this issue.

We’ll watch this case and see how the district court handles it.

[The other issue from Oneida is also important and, for us, way more interesting: what is the impact of a confirmed plan on a pre-petition debt? Essentially, it’s a novation, discharge, or release question, which should come down to the language of the plan–the plan might novate or extinguish the pre-petition debt or it might not. In that regard, the Eleventh Circuit arguably oversimplifies the issue when it points out that a plan typically subsumes the pre-petition debt and creates a new contract. We’ll watch for that issue, too, which could also implicate § 506 valuation issues.]

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The U.S. Supreme Court heard oral argument yesterday in Lamar, Archer & Cofrin, LLP v. Appling, a case from the 11th Circuit regarding the bankruptcy dischargeability exceptions in 11 U.S.C.  § 523(a)(2). Locally, Appling is important because it originated across the street–literally–in Chief Bankruptcy Judge James P. Smith’s courtroom here in the Middle District of Georgia. Our firm is also proud to call Judge Smith an alum. Nationally, even in a week filled with other “blockbuster” opinions and argumentsAppling is important because it highlights a split between the 11th and 4th Circuits, on the one hand, and the 5th, 8th, and 10th Circuits, on the other hand.

Basically, what happens if a debtor lies to a creditor about a particular asset, obtains money or services based on that lie, and then files bankruptcy–should the debt to that creditor be discharged? If you agree with Judge Smith, then a lie about a single asset is not a lie “respecting” the debtor’s “financial condition.” Thus, that lie falls under § 523(a)(2)(A) and may serve as a dischargeability bar. If you agree with the 11th Circuit, then a lie about a single asset can be a lie “respecting” the debtor’s “financial condition.” Thus, that lie falls under § 523(a)(2)(B) and may only serve as a dischargeability bar if, among other things, the lie is in writing.

Those are the issues that the Supreme Court grappled with yesterday, with Gregory Garre arguing for Lamar, Archer & Cofrin, LLP, Paul Hughes arguing for Appling, and Jeffrey Sandberg arguing for the Department of Justice, as amicus curiae, in support of Appling.

As with any bankruptcy issue that reaches the Supreme Court, much has already been written about Appling. Thus, we’ll simply point you to the pertinent links:

Supreme Court Docket Page

Bankruptcy Court Decision

Eleventh Circuit Decision

Oral Argument Transcript

Bill Rochelle’s Hot Take

We’ll be on the lookout for the final decision.

If you’d like to stay on top of this and other important bankruptcy issues, then you can subscribe to Plan Proponent via email here.

As we posted about back in November, the Supreme Court granted cert in the In re The Village at Lakeridge, LLC case. We’ve been following that case since March of 2016 regarding insider status in Chapter 11 bankruptcy cases. Originally, the Ninth Circuit Court of Appeals took up the broader issue of how bankruptcy courts should determine “non-statutory insider” status. Last year, the Supreme Court took on the narrow issue of whether the standard of review for determining insider status should be de novo review (as used by the 3rd, 7th, and 10th Circuits) or clearly erroneous review (as used by the 9th Circuit). Today, the Court, in a unanimous decision, ruled that the standard of review for that determination is a clearly erroneous standard. You can read the decision here. In particular, we found very interesting Justice Kagan’s discussion of “mixed questions of law and fact,” a phrase that my senior partner loathes. We’ll be back with more detailed coverage, likely long after you’ve read all about it from other sources!

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Once again from my in-laws’ home in Potomac, Maryland, here’s Plan Proponent’s Best of 2017 post, a link by link Top 10 of our third year of blogging–although my wife just asked, in rather savage fashion, “Did you even have 10 posts this year?” Wow. (We had 11 posts, so one unlucky post about tax avoidance in Chapter 11 plans didn’t make the cut! Shocker.)

In lieu of my usual year-end pictures from D.C., we leave you with Plan Proponent’s first and only homemade “political cartoon” from last February and inspired by Justice Gorsuch’s In re Haberman opinion. What a year for judges!

Happy New Year from Stone & Baxter!

Our Top 10 Posts of 2017 (the titles are clickable)

10.  Insider Status Travels With Claim? SCOTUS Now Has the Case (Sort Of)

In this post, a sort of follow-up to Tom’s post from 2016, we linked over to oral argument from the day before, wherein the Supreme Court took up In re The Village at Lakeridge, LLC.  Specifically, the Court is still considering whether, on appeal, the standard of review for determining insider status should be de novo review (as used by the 3rd, 7th, and 10th Circuits) or clearly erroneous review (as used by the 9th Circuit).

The only thing to add since that post is a link to the now available oral argument audio: click here

9.  The Los Angeles Dodgers in October: Bankruptcy Edition

Our World Series posts would likely win out each year if they weren’t posted so relatively late in the year. The posts that our families and friends enjoy are our favorite posts.

8.  Preserving Post-Confirmation Causes of Action – Part 2

7.  Preserving Post-Confirmation Causes of Action – Part 1

In these two posts, we explored a novel question of our asking: Does Bell Atlantic Corp. v. Twombly bear on the issue of preserving post-confirmation causes of action in Chapter 11 bankruptcy cases? Ultimately, we concluded that Twombly shouldn’t apply in preserving causes of action. However, framing the preservation issue in terms of Twombly helped illuminate the preservation issue.

6.  Establishing Till-compliant Interest Rates in Chapter 11 without an Expert

In this post, we shamelessly promoted my and Richard Gaudet’s Association of Insolvency & Restructuring Advisors article titled “Till Realized: Calculating Objective Chapter 11 Cramdown Rates without Expert Testimony.” The focus of the article is on the application of the U.S. Supreme Court case of Till v. SCS Credit Corp. (2004) to Chapter 11 debtors who can’t afford to hire an interest rate expertSpecifically, is it possible for a debtor to establish a Till-compliant cramdown interest rate objectively and economically, all without the necessity of engaging an expert witness? We think so.

5.  Revisiting David Cassidy and the Absolute Priority Rule

Our second blog post on February 16, 2015 was about David Cassidy and the absolute priority rule (APR) in individual cases. Cassidy had filed an individual Chapter 11 case in the Southern District of Florida in early 2015. At the time, we thought that his case might be a good test case for the (diminishing) split of authority regarding the APR. On the one hand, our 2015 post is our second most popular post ever. On the other hand, his case didn’t turn out to be a good test case–that, and an update to our Absolute Priority Rule Chart, was the subject of this February 2017 post.

As an update, it appears that the bankruptcy court approved Cassidy’s January disclosure statement in July. Two ballots were cast–one in favor of the plan by American Express and one against by Rodier & Rodier, P.A., Cassidy’s non-bankruptcy lawyers who claimed to be owed $122K. Rodier & Rodier also objected to the plan. It’s basically an APR objection without being captioned as such. The bankruptcy court took-up confirmation on September 27 and, ultimately, denied confirmation and dismissed the case with prejudice.

And sadly, David Cassidy died last month of liver failure.

4.  Administrative Expenses under DIP Financing: The Joke’s On You

I’m not sure how Tom’s post about DIP financing and administrative fees beat out David Cassidy, but it did. In this post, we discussed Delaware Bankruptcy Judge Sontchi’s decision in the Molycorp case wherein he ruled that a professional fees cap in a DIP financing order was ineffective to cap an $8 million committee fees claim once Molycorp confirmed its plan.

3.  Judge Neil Gorsuch’s Bankruptcy Opinions – Part 2

2.  Judge Neil Gorsuch’s Bankruptcy Opinions – Part 1

We enjoyed blogging about Justice Scalia and Judge Merrick Garland last year. Likewise, we enjoyed blogging this year about Judge (now Justice) Gorsuch and what his nomination could mean for bankruptcy cases. Justice Gorsuch can really turn a phrase, even in bankruptcy opinions, and we captured the fun stuff in two parts.

And 2017’s winner is…

1.  Book Excerpt: A Southern Lawyer’s Lunch with Harvey Miller 

We’re really proud of this post. It barely had four months to get a clicks foothold and it still won out rather easily. And other than our having good taste, we can’t even take credit for it. Rather, it’s an excerpt from Doug Ford’s (a commercial bankruptcy attorney in Atlanta at Quirk & Quirk, LLC) book I Do My Own Stunts: Finding My Way as an Attorney. Even my mom approves.

And that’s it for 2017. Thanks for following!

If you’d like to stay on top of important bankruptcy issues throughout the year, then you can subscribe to Plan Proponent via email here.

Back in March of 2016, Tom wrote about In re The Village at Lakeridge, LLC. In that case, the Ninth Circuit Court of Appeals concluded that when MPB, the debtor’s sole member and a “statutory insider,” sold its claim to Dr. Rabkin, who was not an insider, Dr. Rabkin did not inherit MPB’s insider status, per se. Lakeridge is now at the Supreme Court. The Court heard oral argument yesterday.

To be sure, the issue before the Supreme Court is more limited. Specifically, the Court is considering whether, on appeal, the standard of review for determining insider status should be de novo review (as used by the 3rd, 7th, and 10th Circuits) or clearly erroneous review (as used by the 9th Circuit). Unfortunately or thankfully, Ronald Mann at SCOTUSblog beat us to it minutes ago with some excellent coverage of yesterdays’ argument. Thus, here you go:

We’ll continue to keep an eye on Village at Lakeridge.

If you’d like to stay on top of this and other important bankruptcy issues, then you can subscribe to Plan Proponent via email here.

[Note: If you’re an email subscriber, then we highly recommend that you click the post title in the emails and read the posts directly on the website. They’re easier to read that way and embedded videos–like last night’s Vin Scully/Kirk Gibson video–will be clickable. Sorry for any inconvenience. Thanks for subscribing!]



The Los Angeles Dodgers are down 2-3 to the Houston Astros headed into tonight’s Game 6 of the World Series. And after a wild, 12 to 13 extra innings slugfest on Sunday, we figured we’d do what we do best: simmer the anticipation and the excitement with a bankruptcy post. Last year, we wrote about the formerly bankrupt Chicago Cubs when they were down 1-2 against the Cleveland Indians. The Cubs went on to win the Series and end a 108 season drought. In this Halloween post, we’ll try and work the same positive voodoo on the Dodgers, another storied MLB franchise with the bankruptcy asterisk on its record.

A Summer Road Trip to Delaware

On June 27, 2011, Los Angeles Dodgers, LLC, along with four of its affiliates, filed its voluntary Chapter 11 bankruptcy petition in Delaware, making the Dodgers the 5th MLB team ever to seek bankruptcy protection. Barely three months into their 54th season in Los Angeles, the Dodgers were 36-44, placing them second to last in the NL West. They were represented by the ever-present Young Conaway out of Delaware and the now defunct and bankrupt Dewey & LeBoeuf out of LA.

Whereas the Cubs were in and out of bankruptcy in two weeks via a sale, the Dodgers bankruptcy, a slow cook over 2,149 docket entries, was a more traditional restructuring endeavor. They had payroll problems, attendance problems, a $3 billion Fox TV contract problem with MLB, “failure to reach the playoffs” problems, and ownership problems, among others. Indeed, the bankruptcy was just as much about then Dodgers owner Frank McCourt and his divorce as it was about the Dodgers.

We’ll get to the punchline–an April 2012 sale to Guggenheim Partners and Magic Johnson for $2.3 billion–shortly, but here are the essential pleadings:

As long as you promise to come back to our post, Weil’s excellent Five Year Anniversary Dodgers post is also worth a click. In particular, it provides a good overview of the $150 million DIP financing and the MLB squabbles leading-up to the sale.

Browsing the Dodgers’ “40 Largest” and Schedules

Of course, sports bankruptcies are “fun” because everything should become public. Mainly in the category of trivia, then:

From their consolidated list of 40 Largest Unsecured Creditors:

  • Their largest unsecured creditor in 2011 was Manny Ramirez for $21 million.
  • Their second largest unsecured creditor was Andruw Jones (?!) for $11 million.
  • They owed $332,418 to Continental Airlines’ Charter Department.
  • They owed $316,243 on their Bank of America credit card.
  • Matt Kemp, now a part of my Braves family, was only their 27th largest unsecured creditor at $216,944.
  • Vin Scully, the legendary announcer himself, made the list at #32 for $152,778.
  • Finally, they had about $150,000 in “trade debt” owing to Deloitte and to Convington & Burling.

From their various Schedules and Statements of Financial Affairs:

  • LA Dodgers, LLC: $78M in assets and $4.7M in liabilities, but lots “Unknown” entries
  • LA Real Estate, LLC: $157M for Dodger Stadium
  • 29 page catalog of baseball memorabilia going back to 1899 w/ over 1,714 items
  • 128 pages of copyrights, trademarks, and other IP assets (mainly international)
  • 49 pages of unsecured creditors in the main case
  • $265M and $281M in revenues in ’10 and ’09
  • At least 28 pending lawsuits and the like as of the petition date
  • Each Debtor listed as a potential liability the Bryan Stow lawsuit
  • Apparently, the Dodgers suffered a minor insurance casualty during the filming of Moneyball
  • They itemized part of Gary Cypres’ infamous Dodgers collection as “property held for another” (including a $95K Koufax jersey)
  • Apparently, they’re a big Best Buy gift card purchaser!

In the 90 days prior to filing, they paid 257 creditors a total of $15.76 million in transactions that exceeded the reporting threshold, including $922K to Continental Airlines; $259K to the Dominican Republic’s National Baseball Academy; $9K at California Pizza Kitchen; $298K to the Hampton Inn & Suites in Glendale, Arizona; $457K to the LA Dept. of Water & Power; $1.1 million to Levy Restaurants (stadium concessions); $2.76 million to MLB; and $66K to Pyro Events for fireworks (of course).

In the 1 year prior to filing, they paid 8 insiders a total of $29.86 million in transactions, including $22 million in stadium rent to McCourt’s Blue Land Co., LLC; $3.81 million to current employees versus $2.09 million to former employees; $5K for 10 Opening Day dugout seats for Matt Kemp versus $5K for Opening Day tickets for military appreciation; and $5,630 in Red Sox tickets at Fenway for the McCourt family and guests!

From the 2,149 docket entries:

  • There were at least 61 pro hac attorney admissions.
  • Dewey & LeBoeuf’s final compensation as Debtors’ primary counsel: $12.94 million
  • Young & Conaway’s final compensation as Debtors’ local counsel: $1.41 million
  • Morrison & Foerster’s final compensation for the Creditors Committee: $1.53 million

Dodgers Sold to Guggenheim Partners and Magic Johnson

Although the Plan and Confirmation Order spell it out in more detail, McCourt had until April 30, 2012, under the Dodgers’ MLB settlement, to sell the Dodgers and related assets. [He also had until that date to pay his ex-wife, Jamie McCourt, a $131 million divorce settlement in one of the most expensive and public divorces in California history.] To that end, Blackstone Advisory Partners assisted the Dodgers in locating the highest bid for 100% of the equity interests in the Dodgers or a sale of all of the Dodgers’ assets.

Ultimately, Guggenheim Baseball Management, LLC, an entity led by Guggenheim Partners and Lakers legend Magic Johnson, purchased the Dodgers for $2.3 billion (consisting of $2 billion for the team and the stadium and another $300 million for surrounding land and parking lots). At the time, and likely still, it was the largest sports team sale in history–over 2.5 times the $845 million that the Ricketts paid for Cubs in 2009 and almost 2 times the $1.1 billion that Steve Ross paid for the Miami Dolphins. In terms of total deal value, the Dodgers reportedly increased in value by over $2 billion in eight years compared to the $371 million or so that McCourt paid Newscorp for the team in 2004. Finally, under the Plan, all creditors were paid in full and equity interest holders received the net proceeds. Not a bad outcome, and one that earned Dewey a $500,000 success fee on $12.44 million in fees.


Hopefully, this post makes for some entertaining clicks during tonight’s commercial breaks, for lawyers and non-lawyers alike. Be on the lookout for next October’s Bankruptcy Edition wherein we discuss the 2018 World Series. It will surely involve the formerly bankruptcy Texas Rangers or Baltimore Orioles! Until then, and especially if this post doesn’t keep the Dodgers in the Series, we’ll leave you with Vin Scully’s classic call of Kirk Gibson’s equally classic ’88 World Series walk-off homer. Enjoy:


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(Photo Credit: Marilynn K. Yee/The New York Times)

On my drive home from New Year’s in D.C., I learned that my buddy Doug Ford, a commercial bankruptcy attorney in Atlanta at Quirk & Quirk, LLC, had self-published his book I Do My Own Stunts: Finding My Way as an Attorney. I’m not sure how he found time to write it, but it’s an excellent read, especially Doug’s “backstory” as I’ll call it. This Atlanta-raised, Vanderbilt-educated French major’s path to law practice is fascinating to say the least. With that, we thought our readers might enjoy the following excerpt from Stunts about Doug’s 2014 Manhattan lunch with the late Harvey Miller, the architect of modern Chapter 11 practice. So here it goes, Southern debtor collector meets bankruptcy deity. Enjoy!

Excerpt from I Do My Own Stunts: Finding My Way as an Attorney (2016) by Douglas D. Ford, available on Kindle at Amazon.com:

In 2014, I had lunch with Harvey Miller, the well-known restructuring attorney, in Midtown Manhattan. He is since deceased.

Some months previous to our lunch, Mr. Miller had headlined the regional bankruptcy conference here in Atlanta, where he spoke on the current inadequacies of business reorganization law. Only someone like he could have enlivened such a topic, which he did, explaining how he thought the financial system is still at risk. When the speech was over and the program took a break, I approached him, like a moth to a flame, in order to propose a casual meeting in New York, where we were planning to visit. As I figured, all he could do was say he was too busy or ignore me, so I took a chance.

I am a commercial debt collector, involved in bankruptcy out of necessity now — no other young attorney in my firm wanted to learn it. Our matters are relatively smaller and, although sometimes complex, do not involve mortgage-backed securities or airline pilot contracts, to my knowledge. What, then, could I possibly discuss with Mr. Miller, debtor’s lead counsel in the Lehman Brothers and Delta Air Lines Chapter 11 cases, among others?

Mr. Miller accepted my proposal. That summer, I deposited my wife and daughter one morning at the Central Park Zoo and went with trepidation past the William T. Sherman Monument, feeling my Southern-ness, my anywhere-but-New-York-ness. Standing outside a nice Italian place on E. 59th in the shadow of the General Motors building at the appointed time, I saw a tall figure crossing over the street, headed my way.

The first thing Mr. Miller said was that he was watching crude oil, how much they were extracting. A prescient remark, given the recent collapse in oil. I fumbled around, told him of my love of language, offering that France might be the most fabulous trip. Italy, he quickly countered. He was cultured. If I loved the arts, he asked, why was I a lawyer? It is stimulating work, I answered, which I guess is true. He knew about Georgia, too. He told how he had once warned an Atlanta real estate investment outfit about a potential takeover threat, which later materialized. These Southern gentlemen did not fully believe that private equity out of Chicago, given an opening, would really push them out of their own operation — they were doing the “dance of death,” Mr. Miller called it, striking a macabre pose. He understood the power of leverage on a national scale, but his personal manner did not intimidate.

He knew rejection early in his career. As a Jew, he did not select bankruptcy once upon a time — it selected him. He said even Ruth Bader Ginsburg, who he knew personally, could not get a job back then at any silk-stocking firm in New York City, despite graduating first in her class at Columbia — she was not only Jewish, but also female and pregnant. I made sure I heard that correctly — I could understand this happening in the South, but in New York? The country is more uniform in its attitudes than I thought, and the past is not so long ago. To be sure, Mr. Miller talked much more about people than about law. He knew the Securities and Exchange Commission for public shareholder issues, the judges and the politics of the city for local issues. I began to understand that his success was found not so much in the letter of the law as in his understanding of everyone it affects, and in decades of hard work. “We were building something,” he said, referring to the development of a nationwide way to address the inevitable insolvency of American companies. Mr. Miller was not cynical — by the sparkle in his eyes, I could tell that he meant what he said. I began to think he was a passionate man, even a dreamer. I could relate to some of that.

He had some discontent as well. He wasn’t sure the Chapter 11 process worked that well anymore. I sensed in him concern about financial brute force, almost as though the process, the balance of equities between debtor and creditor which he had helped to engineer and which are accepted as law, were under attack. From what I understood, he felt that it has become too easy for the same private equity which once upended those Southern gentlemen to hijack bankruptcy cases by buying pieces of them and for single parties to tie things up endlessly in court to their own advantage — generally for opportunists to take control. Previously, at the conference in Atlanta, he had described standing before a packed courtroom in the Lehman case as Judge Peck declared that there was no alternative but to approve the sale of the company’s assets to another institution, that the stability of the entire financial system depended on it. I asked Mr. Miller at lunch whether people seemed to understand the importance of those proceedings while they took place, and I felt that I had asked the question poorly because of my lack of technical understanding. His exact response I cannot recall, but it was, again, not legal or technical. He had witnessed something alarming, something which the bankruptcy process itself, in its sophistication, was not able to remedy or control, despite the asset sale, and he expressed that to me. When he later testified before the House Committee on the Judiciary, Mr. Miller recounted, the political deadlock surrounding the financial industry was powerful. The problem was not one of sophistication, but one of entrenchment. Thinking of his unifying national vision, I could see how this profound yet routine division in the seat of power troubled Mr. Miller. I did not know what to say, but I felt he was disappointed in Washington. I could relate to some of that, too.

When our lunch ended, I thought highly of Harvey Miller, not so much for his legal expertise, which was superior without question, but for his human understanding and concern. He was cordial and made me feel at home in that nice Italian place. As a New York outsider, I wanted to share how Mr. Miller made a point to include me, who could provide no foreseeable insight or advantage, in his day. Far lesser attorneys have acted more self-important, in my experience, and it is an honor to have met him.

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For our scintillating “Back to School” post, we’ll discuss 11 U.S.C. § 1129(d), which deals with those rare Chapter 11 plans whose “principal purpose” is the “avoidance of taxes.” For most, including judges, § 1129(d) is an afterthought. Until recently, it only crept into my practice by accident: I’ve got a 10 a.m. confirmation hearing in Atlanta. Thus, an hour, maybe a 2 hour drive. It’s 7:25 a.m. My kids need breakfast. I need a confirmation outline. Google “11 U.S.C. 1129”. Copy/paste the good part–1129(a)–and the scary part–1129(b). What the heck, let’s copy/paste the whole thing. Statute in black, my part in green, witness questions (ahem…proffers) in red, with (c) and (d) as stowaways on page 12. Press PRINT–“Kids, you’ve seriously used up all the paper again?!” “Hole punch’s in the playroom, Daddy.” And off I go. 2 hours later:

Your Honor, that brings us to [flipping pages] . . . part (c) which [reading part (c) under my breath] doesn’t apply because…we don’t have competing plans…[reading part (d), half aloud, half to myself]…And part (d) also doesn’t apply because…we aren’t avoiding taxes. Therefore, we satisfy all of the requirements for confirmation under 1129 and request that the Court enter an order confirming the plan [because, of course a 95% LTV and 35% vacancy rate are the hallmarks of a feasible plan].

On its face, § 1129(d) is manageable on the fly. Even the least prepared can stumble through it at the podium. It reads like this:

Notwithstanding any other provision of this section, on request of a party in interest that is a governmental unit, the court may not confirm a plan if the principal purpose of the plan is the avoidance of taxes or the avoidance of the application of section 5 of the Securities Act of 1933. In any hearing under this subsection, the governmental unit has the burden of proof on the issue of avoidance.

Collier teaches us that the purpose of § 1129(d) is to “codify” Gregory v. Helvering, 293 U.S. 465 (1935) in the Bankruptcy Code. If you need a reminder like I did, Helvering is every law student’s introduction to the concept of “substance over form” in Income Tax. As we’ll see below, though, § 1129(d) rarely defeats confirmation. We raised it once and lost rather matter-of-factly. Our concern was well-founded. In a competing plan, our largest creditor had proposed to liquidate all of our assets, take all of the money, and leave the Debtors–or at least their members–with a big tax obligation they couldn’t pay. A “pillage and run” approach that must offend some provision of the Code, right? Maybe, but § 1129(d) wasn’t it, ruled the Court:

“Debtors object that Rialto’s Plans contemplate the disposition of all estate property without an analysis of the tax consequences, violating § 1129(a)(3) and (d). The evidence showed that the tax consequences would affect only non-Debtor entities…[B]ecause all of the Debtors are passthrough entities, any tax consequences flow to the members of the entity, and not the entity itself. As such, there will be no tax consequences to the Debtors. Accordingly, the objection is overruled and the Rialto Plans satisfy § 1129(a)(3).”

Because § 1129 doesn’t, and probably shouldn’t, get a lot of traction, we’ll leave you with the essentials.

Issue 1: Standing

By its express terms, § 1129(d) is limited to challenges by a “party in interest that is a governmental unit,” the clearest examples being the IRS and the SEC. Thus, it doesn’t contemplate, and might even forbid, our debtor challenge. In In re McClean Indus., a SDNY bankruptcy case, the court held that the plan proponent can’t raise it.  There is some debate about whether the United States Trustee can make the challenge. Collier points us to Judge Posner’s In re South Beach Securities opinion for that issue.

If all of the governmental units that could raise it are asleep at the switch, then § 105(a) might provide a workaround, as it provides that “[n]o provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.”

Issue 2: Principal Purpose

The word “the” in the phrase “the principal purpose of the plan” means that the the governmental entity has the burden of proving that the principal purpose of the plan is the avoidance of taxes. As Collier points out, § 1129(d)’s predecessor under the Act–Section 269–focused on whether the plan “has for one of its principal purposes the avoidance of taxes.” A tax avoidance purpose could defeat confirmation, even if the plan also had other principal purposes. Not anymore. Section 1129(d) is strictly construed and applied in limited circumstances.

In our case, for example, the tax problem was a real problem, but it’s difficult to argue that the creditor’s singular principal purpose in proposing its competing plan was the avoidance of taxes. That may have been the outcome–and Rialto might’ve even enjoyed the thought of its borrower’s principal being stuck with a big tax, but its principal purpose in proposing the plan was to get paid. As Collier explains, “[i]f the debtor is insolvent, or in need of financial reorganization, it will be rare that taking advantage of tax or securities laws would be the principal purpose.” 7-1129 Collier on Bankruptcy P 1129.07 (16th ed. 2017).

Issue 3: In re Scott Cable Communications

In researching the last part of this post, I came across an ABI article from 1999 that covered § 1129(d). If I had located it before typing this post, I could have linked to it, pressed “Publish,” and been done. In any event, it’s a good article and you should read it. Click here. More than I’m willing to address them here, the article goes into detail about the estoppel and res judicata tensions between bankruptcy courts and the IRS when it comes to assessing the tax consequences of a plan under § 1129(d).

The most interesting part, I think, is the In re Scott Cable Communications, 227 B.R. 603 (Bankr. D. Conn. 1998), discussion. It’s interesting for 2 reasons.

First, Scott Cable shows the IRS raising § 1129(d) in conjunction with § 1129(a)(9)(A), the argument going like this: Not only is the principal purpose of the plan the avoidance of taxes, but the plan also violates § 1129(a)(9)(A) because it doesn’t provide for the payment of administrative expenses in the form of taxes. I can’t remember if we joined our argument with administrative expenses–I think we did because we raised just about every single provision of the Code in opposition–but it’s a good argument, and it prevailed in Scott Cable. Thus, if you have a tax objection that can’t withstand 1129(d)’s strict scrutiny, then test your objection under another provision of the Code.

Second, Scott Cable provides an example of a plan that does violate § 1129(d). In short, Scott Cable involved a pre-packaged liquidating plan that called for the sale of the debtor’s assets to a third party. Junior creditors wouldn’t approve the deal without getting something. They couldn’t get something if the debtor had to pay capital gains taxes instead of paying them. Therefore, the debtor provided that the sale would occur in bankruptcy but outside of the administrative expense period. It also proposed injunctive relief for those debtor principals who might have exposure on the tax liabilities.  All very clever.

The court shot it down under § 1129(a)(9)(A) because the plan didn’t provide for the payment of capital gains taxes that would have been administrative expenses but for the proposed closing date. The court concluded that, in such a liquidation, the administrative period should extend through the completion of the sale. It also shot the plan down under § 1129(d) because it concluded that THE principal purpose of the plan was, in reliance on particularities of the Code, to avoid paying the capital gains taxes. The debtor could just as easily have conducted the sale outside of bankruptcy. In other words, the bankruptcy was not motivated by insolvency or a need for financial reorganization. Finally, the court shot down the injunction because there was no basis for it under the Code. Is there every a basis for non-debtor relief?

And there you have it, § 1129(d).

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In Part 1, we asked whether Bell Atlantic Corp. v. Twombly bears on the issue of preserving post-confirmation causes of action in Chapter 11 bankruptcy cases. That is, does § 1123(b)(3) impose Twombly‘s heightened “plausibility standard” on plan proponents seeking to preserve causes of action? We began to answer that question by reviewing two very recent cases, Johns v. Eastman Chemical (S.D. W. Va.) and MF Global Holdings USA v. Heartland Co-Op (S.D.N.Y.). For those two cases, Twombly pleading might be useful, but it’s not required. What about in Circuits other than the Second and Fourth? We’ll address the other Circuits in Part 2 but, even with the differences among the Circuits, courts have not explicitly or implicitly imposed Twombly on § 1123(b)(3).

However, we still think that Twombly provides a useful standard, especially for those of us who are haunted by res judicata/estoppel worries.

[Note: That was the view from my hotel room in Savannah when I finally got around to drafting Part 2. The next morning, TWO of those ships were impossibly close as they passed each other!]

Quick Twombly Recap

As we reminded in Part 1, the U.S. Supreme Court clarified Twombly‘s 2-pronged approach in Ashcroft v. Iqbal. First, a federal court need only accept as true factual allegations, not legal conclusions disguised as facts. Second, and more important for our purposes, the factual allegations must state a plausible claim for relief. After Twombly, courts must be less forgiving when gauging the sufficiency and plausibility of a complaint’s factual allegations. Our question is whether bankruptcy courts should insist that plan proponents satisfy that approach when describing causes of action in a plan.

Claim Preservation in Other Circuits

We imagined that Part 2 would give us an opportunity to provide an updated Circuit survey. Coming back to this over a month later (!), though, a Circuit survey isn’t very illuminating for our issue.

First, if there is a Circuit split on the preservation issue, generally, then it has likely consolidated into two camps: the 5th and, maybe, 6th Circuit, on the one hand, and the rest of the Circuits, on the other.

If you need something of a proper Circuit survey, then checkout Mark Collins’ and Cory Kandestin’s excellent SBLI article: Preserving and Prosecuting Causes of Action Post-Confirmation. We also enjoyed Siddharth Sisodia’s 2015 ABA article: What Level of Specificity is Needed to Preserve Post-Confirmation Claims? Norton also has a good article. Collier, not so much (surprisingly).

If you need something super simple and roughly accurate, then here’s our take:

Indeed, the 5th Circuit’s “specific” and “unequivocal” language requirement has been softening, at best, and has been evolving rather unpredictably, at worst. Do you have to name potential defendants? Probably not. Does the 5th Circuit recognize “preservation by category”? Not reliably or predictably. And while Browning first appears worrisome for debtors, Pen (a lower court decision) does a good job distinguishing Browning and putting the 6th Circuit in the “everyone else” category. The rest of the Circuits, either at the Circuit level or in their lower courts, appear to follow the cases we discussed in Part 1.

Second, there doesn’t appear to be a split on these suggestions:

  • An ambiguous preservation provision is always problematic
  • Blanket claim reservations aren’t sufficient (i.e., “all claims of all types”)
  • Listing claims by category or type is the minimum starting point
  • Common law claims should get a more careful look
  • Known common law claims should get an extra careful look
  • Be as specific about names, facts, and the claims basis as possible

Third, there also doesn’t appear to be a split on the Twombly issue. To be sure, we’re unaware of any court that has addressed Twombly in the claim preservation context. However, even the 5th Circuit would be hard-pressed to insist that the preservation language survive a motion to dismiss. As pointed out in Pen§ 1123(b)(3) is not “designed to protect defendants from unexpected lawsuits.” Rather, it’s intended to permit creditors to identify and evaluate assets that might be available for distribution. Therefore, Twombly-quality pleading will almost certainly satisfy that intention, but it’s not necessary

That said, evaluating claim preservation language from the standpoint of Twombly is useful, especially for known, common law claims, particularly given that known common law claims are the claims that most often get challenged in the preservation context, even in the more “forgiving” Circuits. In fact, it’s not hard to imagine even a “forgiving” court coming down harshly on a debtor who, despite knowing about a claim and the facts surrounding that claim, buries that claim in a claim category or type when describing it. The same could be said for Chapter 5 claims, even if courts appear most-apt to accept categorical preservation for bankruptcy-type causes of action. That is, it might be onerous to disclose Chapter 5 claims on a per claim basis, especially in large cases, but their pertinent facts are generally known or available.


Arguably, the Circuits are less “split” on the claim preservation issue than they used to be and, except for the 5th Circuit, which is still evolving, most Circuits or their lower courts that have weighed-in agree that, with limited case-by-case exceptions, preserving claims by category or type will satisfy § 1123(b)(3). Most courts are more forgiving in larger cases than they are in smaller cases; for Chapter 5 claims than they are for common law claims; for unknown claims than they are for known claims; and for good faith claim investigation than they are for “hiding the ball.”

Focusing on, if not complying with, Twombly will not only assist practitioners in interviewing their debtor clients about potential claims, but also about how much due diligence and specificity a case’s circumstances warrant. Finally, it’s not hard to imagine the Supreme Court, if presented with this hairline split, forcing Twombly onto it, as the Court is prone to apply what it knows (e.g., Twombly) to the areas that it’s not fond of (e.g., bankruptcy).

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