IN THE Supreme Court of the United States R2 No. 17-412 IN THE Supreme Court of the United States...
58
Team R2 No. 17-412 IN THE Supreme Court of the United States OCTOBER TERM, 2017 IN RE HIGH ROCKS, INC., DEBTOR HIGHWAY 61, INC., PETITIONER, V. HIGH ROCKS, INC., RESPONDENT. On Writ of Certiorari to the United States Court of Appeals for the Thirteenth Circuit BRIEF FOR RESPONDENT Team R. 2 Counsel for Respondent Oral Argument Requested
Transcript of IN THE Supreme Court of the United States R2 No. 17-412 IN THE Supreme Court of the United States...
Team R2
No. 17-412
IN THE
Supreme Court of the United States
OCTOBER TERM, 2017
IN RE HIGH ROCKS, INC., DEBTOR
HIGHWAY 61, INC., PETITIONER,
V.
HIGH ROCKS, INC., RESPONDENT.
On Writ of Certiorari to the United States
Court of Appeals for the Thirteenth Circuit
BRIEF FOR RESPONDENT
Team R. 2
Counsel for Respondent
Oral Argument Requested
Team R2
i
QUESTIONS PRESENTED
1. May a bankruptcy court approve a sale of real property “free and clear” of a lessee’s
leasehold interest pursuant to section 363(f) of the Bankruptcy Code when there is no
rejection as required for protection under section 365(h)?
2. May a bankruptcy court approve a contested “gift” settlement involving money directly
from a section 363 purchaser to unsecured creditors when the settlement proceeds provide
significant Code-related objectives?
Team R2
ii
TABLE OF CONTENTS
QUESTIONS PRESENTED ......................................................................................................... i
TABLE OF AUTHORITIES ...................................................................................................... iv
OPINIONS BELOW .................................................................................................................... xi
STATEMENT OF JURISDICTION .......................................................................................... xi
CONSTITUTIONAL AND STATUTORY PROVISIONS INVOLVED ............................... xi
STATEMENT OF THE FACTS ................................................................................................. 1
SUMMARY OF THE ARGUMENT .......................................................................................... 4
ARGUMENTS AND AUTHORITIES ........................................................................................ 6
I. The Lower Courts Properly Determined High Rocks Could Sell the Property Free
and Clear of Highway’s Leasehold Interests .........................................................................6
A. The Plain Meaning of Section 363(f) Compels its Application ......................................7
1. Section 363(f) entitles High Rocks to sell the property free and clear of Highway’s
leasehold interest ............................................................................................................8
2. Section 363(e) allows Highway to continue possession of the property under its lease;
Highway failed to request it .........................................................................................10
3. Congressional policy of section 363(f) favors a free and clear sale ............................12
B. Section 365(h) Does Not Create Substantive Rights Nor Grant Absolute
Immunity from Section 363 Sales Unless There is a Formal Rejection ......................13
1. High Rocks declined to reject Highway’s Lease because it did not file a formal motion
to reject the lease as required by section 365(h) ..........................................................13
2. As a debtor-lessor, High Rocks does not fall under the narrow exception of a deemed
rejection........................................................................................................................17
C. Because High Rocks Filed for Bankruptcy Prior to the Completion of the
Amphitheater, Section 365(g)(1) Bars the Application of Rights Granted Under
Section 365(h) ...................................................................................................................20
II. The Non-Estate Committee Settlement, Unquestionably Fair and Equitable,
Promotes Significant Code-Related Objectives...................................................................22
A. The Committee Settlement is Not and Will Never Become Part of the Estate ...........23
Team R2
iii
B. Nothing in the Settlement Infringes Upon the Jevic Ruling .........................................25
CONCLUSION ........................................................................................................................... 30
APPENDIX A: Selected Sections from Title 11 of the U.S. Code............................................ A
APPENDIX B: Selected Federal Rules of Bankruptcy Procedure ........................................... B
APPENDIX C: Selected Bankruptcy Act Provisions ................................................................ C
Team R2
iv
TABLE OF AUTHORITIES
U.S. CONSTITUTION
U.S. CONST. art. I, § 8, cl. 4 .......................................................................................................... 18
STATUTES & RULES
11 U.S.C. § 361 (2012) ................................................................................................................. 10
11 U.S.C. § 362 (2012) ................................................................................................................. 12
11 U.S.C. § 363 (2012) .......................................................................................................... passim
11 U.S.C. § 365 (2012) .......................................................................................................... passim
11 U.S.C. § 506 (2012) ................................................................................................................. 29
11 U.S.C. § 507 (2012) ................................................................................................................. 29
11 U.S.C. § 541 (2012) ............................................................................................... 23, 24, 25, 26
11 U.S.C. § 726 (2012) ................................................................................................................. 29
11 U.S.C. § 1107 (2012) ..................................................................................................... 8, 14, 29
11 U.S.C. § 1112 (2012) ............................................................................................................... 12
11 U.S.C. § 1123 (2012) ......................................................................................................... 12, 23
11 U.S.C. § 1129 (2012) ............................................................................................................... 23
11 U.S.C. § 1141 (2012) ............................................................................................................... 12
11 U.S.C. §110 (repealed 1978).................................................................................................... 19
Act of July 10, 1984,
Pub. L. No. 98-353, 98 Stat. 333 .............................................................................................. 19
Bankruptcy Reform Act of 1978,
Pub. L. No. 95-598, 92 Stat. 2549 ............................................................................................ 19
Bankruptcy Technical Corrections Act of 2010,
Pub. L. No. 111-327, 124 Stat. 3557 ........................................................................................ 20
Team R2
v
Fed. R. Bankr. P. 6004 ............................................................................................................ 15, 17
Fed. R. Bankr. P. 6006 ............................................................................................................ 15, 17
Fed. R. Bankr. P. 9013 .................................................................................................................. 15
Fed. R. Bankr. P. 9014. ................................................................................................................. 15
Fed. R. Bankr. P. 9019 .................................................................................................................. 22
U.S. SUPREME COURT CASES
Caminetti v. United States,
242 U.S. 470 (1917) .................................................................................................................... 7
Czyzewski v. Jevic Holding, Inc.,
137 S. Ct. 973 (2017) ......................................................................................................... passim
Duncan v. Walker,
533 U.S. 167 (2001) ............................................................................................................ 13, 20
Fla. Dep’t of Revenue v. Piccadilly Cafeterias, Inc,
128 S. Ct. 2326 (2008) .......................................................................................................... 7, 26
Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A.,
530 U.S. 1 (2000) ...................................................................................................................... 28
Hughes Aircraft Co. v. Jacobson,
525 U.S. 432 (1999) .................................................................................................................... 7
Langnes v. Green,
282 U.S. 531 (1931) .................................................................................................................. 25
Mobil Oil Corp. v. Higginbotham,
436 U.S. 618 (1978) ............................................................................................................ 18, 19
Morton v. Mancari,
417 U.S. 535 (1974) .................................................................................................................. 13
Mullane v. Cent. Hanover Bank & Trust Co.,
339 U.S. 306 (1950) .................................................................................................................. 15
NLRB v. Bildisco & Bildisco,
465 U.S. 513 (1984) .............................................................................................................. 7, 14
Team R2
vi
Oneale v. Thorton,
10 U.S. 53 (1810) ........................................................................................................................ 7
Pioneer Inv. Servs. v. Brunswick Assocs. Ltd. P’ship,
507 U.S. 380 (1993) .............................................................................................................. 7, 23
Protective Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson,
390 U.S. 414 (1968) ...................................................................................................... 22, 25, 26
Russello v. United States,
464 U.S. 16 (1983) .................................................................................................... 8, 10, 12, 18
United Sav. Ass’n of Tex. v. Timbers of Inwood Forest Assocs.,
484 U.S. 365 (1987) .................................................................................................................. 13
United States v. Goldenberg,
168 U.S. 95 (1897) ...................................................................................................................... 7
United States v. Gonzales,
520 U.S. 1 (1997) .................................................................................................................. 9, 23
United States v. Menasche,
348 U.S. 528 (1955) .................................................................................................................. 13
United States v. Ron Pair Enters.,
489 U.S. 235 (1989) .................................................................................................. 7, 14, 18, 19
Watt v. Alaska,
451 U.S. 259 (1981) .................................................................................................................. 13
U.S. CIRCUIT COURT OF APPEALS CASES
BDA Design Grp., Inc. v. Official Unsecured Creditors’ Comm. (In re Hearthwood N. I Ass’n),
579 Fed. App’x 369 (5th Cir. 2014) ................................................................................... 24, 25
Century Indem. Co. v. NGC Settlement Trust (In re Nat’l Gypsum Co.),
208 F.3d 498 (5th Cir. 2000) .................................................................................................... 16
Debbie Reynolds Hotel & Casino, Inc. v. Calstar Corp. (In re Debbie Reynolds Hotel & Casino
Corp.), 255 F.3d 1061 (9th Cir. 2001) ...................................................................................... 29
Drexel Burnham Lambert Inc. v. Flight Transp. Corp. (In re Flight Transp.),
730 F.2d 1128 (8th Cir. 1984) .................................................................................................. 26
Team R2
vii
Edwards v. Mazer (In re Edwards),
961 F.2d 219 (10th Cir. 1992) .................................................................................................. 26
EEOC v. Univ. of Pa.,
850 F.2d 969 (3d Cir. 1988)...................................................................................................... 25
Fishell v. Soltow (In re Fishell),
47 F.3d 1168 (6th Cir. 1995) .................................................................................................... 25
Hicks, Muse & Co. v. Brandt (In re Healthco Int’l),
136 F.3d 45 (1st Cir. 1998) ....................................................................................................... 25
In re Armstrong World Indus., Inc.,
432 F.3d 507 (3d Cir. 2005)...................................................................................................... 25
In re Doctors of Hyde Park, Inc.,
474 F.3d 421 (7th Cir. 2007) .................................................................................................... 25
In re Flagstaff Realty Assocs.,
60 F.3d 1031 (3d Cir. 1995)...................................................................................................... 21
In re Goody’s Family Clothing Inc.,
610 F.3d 812 (3d Cir. 2010)........................................................................................................ 6
In re James Wilson Assocs.,
965 F.2d 160 (7th Cir. 1992) .................................................................................................... 16
In re LCI Holding Co.,
802 F.3d 547 (3d Cir. 2015)................................................................................................ 23, 24
In re Moore,
608 F.3d 253 (5th Cir. 2010) .................................................................................................... 25
In re O’Connor,
808 F.2d 1393 (10th Cir. 1987) ................................................................................................ 10
In re TWA,
322 F.3d 283 (3d Cir. 2003)........................................................................................................ 9
In re Woodson,
839 F.2d 610 (9th Cir. 1988) .................................................................................................... 26
Team R2
viii
Ind. State Police Pension Trust v. Chrysler LLC (In re Chrysler LLC),
576 F.3d 108 (2d Cir. 2009), cert. granted and vacated on other grounds, 558 U.S. 1087
(2009) .......................................................................................................................................... 9
La. World Exposition, Inc. v. Fed. Ins. Co. (In re La. World Exposition Inc.),
832 F.2d 1391 (5th Cir. 1987) ............................................................................................ 24, 25
Mason v. Official Comm. of Unsecured Creditors (In re FBI Distrib. Corp.),
330 F.3d 36 (1st Cir. 2003) ....................................................................................................... 16
Motorola, Inc. v. Official Comm. of Unsecured Creditors (In re Iridium Operating LLC),
478 F.3d 452 (2d Cir. 2007)............................................................................................... passim
Myers v. Martin (In re Martin),
91 F.3d 389 (3d Cir. 1996)...................................................................................... 23, 25, 26, 27
Official Comm. of Unsecured Creditors of Bond v. White Plains Joint Venture (In re Bond),
16 F.3d 408 (4th Cir. 1994) ...................................................................................................... 25
Pinnacle Rest. at Big Sky, LLC v. CH SP Acquisitions (In re Spanish Peaks Holdings II, LLC),
872 F.3d 892 (9th Cir. 2017) .................................................................................. 10, 15, 16, 17
Precision Indus. v. Qualitech Steel SBQ, LLC,
327 F.3d 537 (7th Cir. 2003) ............................................................................................. passim
S. St. Seaport Ltd. P’ship. v. Burger Boys (In re Burger Boys),
94 F.3d 755 (2d Cir. 1996)........................................................................................................ 16
U. Mine Workers of Am. 1992 Benefit Plan v. Leckie Smokeless Coal Co. (In re Leckie Smokeless
Coal Co.), 99 F.3d 573 (4th Cir. 1996) ................................................................................. 9, 10
Wallis v. Justice Oaks (In re Justice Oaks II, LTD),
898 F.2d 1544 (11th Cir. 1990) ................................................................................................ 26
Will v. Nw. Univ. (In re Nutraquest, Inc.),
434 F.3d 639 (3d Cir. 2006)............................................................................................ 6, 25, 26
Yacovi v. Rubin & Rudman, L.L.P. (In re Yacovi),
411 Fed. App’x 342 (1st Cir. 2011) .................................................................................... 23, 27
U.S. BANKRUPTCY APPELLATE PANEL CASES
Dataprose, Inc. v. Amerivision Communs., Inc. (In re Amerivision Communs., Inc.),
349 B.R. 718 (B.A.P. 10th Cir. 2006)....................................................................................... 16
Team R2
ix
Mass. Dep’t of Unemployment Assistance v. OPK Biotech, LLC (In re PBBPC, Inc.),
484 B.R. 860 (B.A.P. 1st Cir. 2013) ........................................................................................... 9
UNITED STATES DISTRICT COURT
In re Andre Chreky, Inc.,
448 B.R. 596 (D.D.C. 2011) ..................................................................................................... 26
U.S. BANKRUPTCY COURT CASES
Dishi & Sons v. Bay Condos LLC,
510 B.R. 696 (Bankr. S.D.N.Y. 2014) ...................................................................................... 11
IDEA Boardwalk, LLC v. Revel Entm’t Grp. (In re Revel AC, Inc.),
532 B.R. 216 (Bankr. D.N.J. 2015) .......................................................................................... 17
In re Churchill Props. III, Ltd. P’ship,
179 B.R. 283 (Bankr. N.D. Ill. 1996) ....................................................................................... 17
In re Crumbs Bake Shop, Inc.,
522 B.R. 766 (Bankr. D.N.J. 2014) .......................................................................................... 17
In re Downtown Athletic Club of N.Y. City,
No. M-47 (JSM), 2000 U.S. Dist. LEXIS 7917 (Bankr. S.D.N.Y. June 9, 2000) .................... 17
In re Haskell L.P.,
321 B.R. 1 (Bankr. D. Mass. 2005) .................................................................................... 11, 17
In re Lee Rd. Partners,
155 B.R. 55 (Bankr. E.D.N.Y. 1993) ........................................................................................ 17
In re Napoleon,
551 B.R. 200 (Bankr. E.D.N.C. 2016) ...................................................................................... 24
In re R.J. Dooley Realty, Inc.,
No. 09-36777, 2010 Bankr. LEXIS 1791 (Bankr. S.D.N.Y. May 21, 2010)............................ 16
In re Ware,
No. 12-30566-KLP, 2014 Bankr. LEXIS 2437 (Bankr. E.D. Va. June 3, 2014)...................... 29
In re World Health Alts.,
344 B.R. 291 (Bankr. D. Del. 2006) ............................................................................. 23, 24, 25
Team R2
x
In re Zota Petroleums, LLC,
482 B.R. 154 (Bankr. E.D. Va. 2012) ....................................................................................... 17
LEGISLATIVE MATERIALS
130 Cong. Rec. H7489 (June 29, 1984), reprinted in 1984 U.S.C.C.A.N. 576 ........................... 19
Bankruptcy Reform Act of 1994,
Section-by-Section Analysis, 140 Cong. Rec. H10,752-01 (daily ed. Oct. 4, 1994) ................ 18
H.R. Rep. No. 95-595 (1977), reprinted in 1978 US.C.C.A.N. 5963 ................................... passim
SECONDARY SOURCES
10 Collier on Bankruptcy
(Alan N. Resnick & Henry J. Sommer eds., 16th ed. rev. 2017) ........................................ 16, 23
3 Collier on Bankruptcy
(Alan N. Resnick & Henry J. Sommer eds., 16th ed. rev. 2017) .............................. 8, 14, 19, 21
7 Collier on Bankruptcy
(Alan N. Resnick & Henry J. Sommer eds., 16th ed. rev. 2017) .............................................. 12
Arturo Bris et al., The Cost of Bankruptcy: Chapter 7 Liquidation versus Chapter 11
Reorganization, 61 J. FIN. 1253 (2006) .................................................................................... 28
BALLENTINE’S LAW DICTIONARY (3d ed. 2010) ....................................................................... 8, 23
BLACK’S LAW DICTIONARY (10th ed. 2014) ................................................................................... 8
D.J. Baker et al., Commission to Study the Reform of Chapter 11: 2012~2014 Final Report and
the Recommendations, Am. Bankr. Inst. 1 (2014), http://commission.abi.org/full-report. . 19, 20
Merriam-Webster Dictionary (11th Ed. 2003) .............................................................................. 21
Michael T. Andrew, Real Property Transactions and the 1984 Bankruptcy Code Amendments,
20 Real Prop. Prob. & Tr. J. 47 (1985) ...................................................................................... 19
RESTATEMENT (SECOND) OF CONTRACTS (Am. Law Inst. 1981) .................................................. 24
Team R2
xi
OPINIONS BELOW
The decision of the U.S. Bankruptcy Court for the District of Moot is unreported and
therefore unavailable. The decision for the U.S. Court of Appeals for the Thirteenth Circuit is also
unreported. The opinion for the Thirteenth Circuit is set forth in Case No. 16-315, dated July 14,
2017, and is incorporated in the record on appeal (hereinafter, “R.”).
STATEMENT OF JURISDICTION
The formal statement of jurisdiction is waived pursuant to Competition Rule VIII.
CONSTITUTIONAL AND STATUTORY PROVISIONS INVOLVED
The constitutional and statutory provisions and bankruptcy rules listed below are relevant
to determine the present case, and selected statutes are reproduced in Appendices A, B, and C.
U.S. Const. art. I, § 8, cl. 4;
11 U.S.C. § 110(b) (repealed 1978);
11 U.S.C. §§ 361, 362, 363, 365, 506, 507, 541, 726, 1107, 1112, 1123, 1129, 1141 (2012);
Fed. R. Bankr. P. 6004, 6006, 9013, 9014, 9019.
Team R2
xii
No. 17-412
IN THE
Supreme Court of the United States
OCTOBER TERM, 2017
IN RE HIGH ROCKS, INC., DEBTOR
HIGHWAY 61, INC., PETITIONER,
V.
HIGH ROCKS, INC., RESPONDENT.
On Writ of Certiorari to the United States
Court of Appeals for the Thirteenth Circuit
BRIEF FOR RESPONDENT
TO THE SUPREME COURT OF THE UNITED STATES:
Respondent, High Rocks, Inc., appellee in Case No. 17-412 before the U.S. Court of
Appeals for the Thirteenth Circuit, respectfully submits this brief on the merits and asks this Court
to affirm the decision of the Thirteenth Circuit Court of Appeals.
Team R2
1
STATEMENT OF THE FACTS
The Parties. High Rocks, Inc. (“High Rocks”), the debtor, sought to bring substantial value
to the city of Rainier through its development of a 30-story, 400-room hotel tower, casino,
restaurants, conference facilities, and a 7,000 seat outdoor amphitheater built into the surrounding
mountains. R. at 3–4. High Rocks received an $800 million secured loan from North Country Bank
(“North Country”) to finance the development. Id. at 4. High Rocks hired Skyline Construction,
Inc. (“Skyline”), a company with significant experience building hotels and entertainment venues,
through a very competitive bidding process to serve as the development’s general contractor. Id.
Construction began in May 2014. Id. But construction of the hotel and casino faced significant
obstacles and delays due to Skyline’s mismanagement, leading High Rocks to terminate its
contract with Skyline in December 2015. Id. After the termination, the hotel tower and casino
building still required significant work, and the incomplete amphitheater lacked seats, sound
equipment, and specialized acoustic panels. Id. at 4–5. High Rocks contracted with Shelter From
the Storm Builders, Inc. (“Shelter”), an experienced builder, in January 2016 to complete the
casino’s construction. Id. at 5. Shelter lacked the experience to “complete construction of the
amphitheater,” so High Rocks agreed to find another contractor to complete the amphitheater. Id.
Chapter 11 Bankruptcy. Frustrated by the repeated delays, in February 2016, North
Country sold its note “at a sizable discount” to 4th Street, which owns and operates numerous
resort and entertainment properties. R. at 5. 4th Street acknowledged it acquired High Rocks’ note
as part of a “loan to own” strategy and, in June 2016, commenced foreclosure against High Rocks.
Id. To halt foreclosure, High Rocks filed for voluntary Chapter 11 bankruptcy one month later. Id.
Highway Lease. Prior to breaking ground, High Rocks entered into an agreement to lease
the amphitheater to Highway 61, Inc. (“Highway”). R. at 5. The Highway Lease established that
upon “competition of the amphitheater,” Highway would manage, market, and operate the music
Team R2
2
venue for the duration of the thirty-year lease. Id. In exchange, Highway agreed to pay High Rocks
$400,000 per year plus a portion of ticket and concession sales. Id.
Administrative Claim. After filing for Chapter 11 bankruptcy, Highway approached High
Rocks and offered to complete the amphitheater by installing the seats, sound equipment, and
acoustic panels. R. at 6. Highway and High Rocks received approval from the bankruptcy court
and entered into a post-petition contract where Highway agreed to finish the amphitheater in
exchange for a payment of $2 million that High Rocks deferred until the development opened. Id.
Highway finally completed construction of the amphitheater in November 2016, over two years
after construction began, thus beginning its thirty-year lease. See id. at 4, 6. All parties stipulated
that Highway’s post-petition construction entitled it to an administrative expense of $2 million
under section 503(b)(1). Id. at 6. Due to a myriad of issues, the construction of the casino continued
to be delayed. Id. Facing financial problems, High Rocks ultimately halted all construction in late
December 2016 and filed a motion to sell substantially all of its assets “free and clear of all liens,
claims, encumbrances and interests” pursuant to section 363(f) of the Bankruptcy Code. Id.
Free and Clear Sale. Not at this point—or at any point—did High Rocks expressly or
formally reject the lease, but instead it only filed “a motion to sell substantially all of its assets
‘free and clear of all liens, encumbrances, and interests’ pursuant to section 363(f) of the
Bankruptcy Code.”1 R. at 6–7. High Rocks and Highway stipulated one or more of the
requirements in section 363(f) had been satisfied. Id. at 9 n.6. At the auction, 4th Street, as the only
qualified bidder, credit bid its debt under section 363(k). Id. at 7–8. 4th Street agreed it would pay
cash for the assets if its liens were later successfully challenged. Id. at 7 n.4. Highway and the
Committee objected to the section 363(f) sale. Id. at 7. Highway claimed it was entitled to
1 Likewise, Highway never sought to compel assumption or rejection of the lease pursuant to 11 U.S.C. § 365(a).
Team R2
3
continued possession of the amphitheater under section 365(h), but—critically—failed to request
adequate protection in the form of continued possession under section 363(e). Id. at 6–8, 14.
The Committee Settlement. Prior to the auction, the Committee “informally alleged”
various lender liability claims against 4th Street. R. at 7. The Committee also took the lead in
investigating purportedly “very valuable” claims against Skyline relating to alleged
mismanagement of the construction project. Id. High Rocks lacked resources to investigate the
claims against Skyline, and therefore assigned them as part of an unrelated settlement to a litigation
trust, the sole beneficiaries of which are unsecured creditors. Id. No party objected to this
assignment. Id. at 7 n.3. Days before the sale hearing, High Rocks, the Committee, and 4th Street
reached a settlement (the “Committee Settlement”). Id. at 8. The Committee Settlement provided
that, in exchange for the Committee releasing all claims against 4th Street and the Committee
withdrawing its objection to the section 363 sale, 4th Street would pay $2 million of its own money
to fund the unsecured creditors’ trust for the sole purpose of funding claims against Skyline. Id.
Sale Hearing. At the sale hearing, Highway asserted two objections to the sale: (1) the
section 363 sale improperly terminated its right of continued possession under section 365(h), and
(2) the Committee Settlement’s $2 million gift circumvented the absolute priority rule. R. at 8. The
bankruptcy court denied Highway’s two objections, holding that section 363(f) trumped Highway
rights, if any, under section 365(h) and that the absolute priority rule was not implicated. Id. at 8–
9. Further, the bankruptcy court found that “the settlement was in the best interests of all parties”—
a finding that has not been challenged on appeal. Id. at 9, 15.
Procedural History. The district court affirmed the bankruptcy court’s rulings, to which
the Thirteenth Circuit also affirmed. R. at 9, 20. This appeal followed. Id. at 1.
Team R2
4
SUMMARY OF THE ARGUMENT
This Court should affirm the Thirteenth Circuit’s decision because to hold that section
365(h) trumps 363(f) when there is no rejection ignores the plain meaning and contravenes
statutory interpretation. Section 363(f) plainly makes clear that any property, under specified
conditions, may be sold unencumbered of “any interest” held by others, including Highway’s
leasehold interest. Highway could—but did not—request adequate protection, which would have
allowed it to retain possession of the amphitheater. Interpreting section 365(h) to conflict with
section 363(f), when there is no formal rejection, would undermine Congress’s express intention
to bestow additional rights to tenants only when there is a rejection of an unexpired lease.
High Rocks, as a Chapter 11 debtor, can reject Highway’s lease only by using a formal
motion to reject in accordance to the Bankruptcy Rules. Without a formal rejection, the protections
under section 365(h) are unavailable. Congress makes clear that Highway only gains the
protections of section 365(h) in the event High Rocks “rejects an unexpired lease of real property.”
Congress intended a deemed rejection to be limited to only debtor-lessees.
Highway’s lease commenced after High Rocks filed for Chapter 11 bankruptcy. Highway
could not avail itself to the protections under section 365(h) even in the unlikely chance High
Rocks formally rejected the lease. Therefore, the bankruptcy court may approve the sale of High
Rock’s property free and clear of Highway’s leasehold interest.
Additionally, this Court should affirm the Thirteenth Circuit’s decision to approve the
Committee Settlement. 4th Street’s gift was never part of the bankruptcy estate, and thus the
absolute priority rule does not apply. Even if the money became a part of the estate, the absolute
priority rule still would not apply because the Committee Settlement promotes the significant
Code-related objectives this Court highlighted in Jevic. Not only does the Committee Settlement
meet the fair and equitable standard, but it also maximizes the value of the estate and gives High
Team R2
5
Rocks the best possible course of action to help alleviate the stresses caused by its crushing debts.
Circumventing the absolute priority rule also significantly favors Highway as a disfavored creditor.
Therefore, the bankruptcy court did not abuse its discretion in approving the Committee
Settlement.
For these reasons, this Court should affirm the decision of the Thirteenth Circuit.
Team R2
6
ARGUMENTS AND AUTHORITIES
The Thirteenth Circuit did not err in approving the proposed sale of substantially all assets
under section 363(f) and confirming the Committee Settlement. High Rocks never formally
rejected the lease, failing to trigger the protections under section 365(h) and providing no conflict
between section 365(h) and section 363(f). The free and clear sale provided an excellent tool
allowing High Rocks to decide how to restructure its debts. Further, the Committee Settlement
fulfilled significant Code-related objectives and may circumvent the absolute priority rule as
allowed by this Court in Jevic. Moreover, the Committee Settlement helps to both expedite the
administration of the estate and maximize the value received by the creditors. For these reasons,
this Court should uphold the Thirteenth Circuit’s decision affirming the district court and the
bankruptcy court.
As with civil appeals, decisions of bankruptcy courts are subject to de novo review for
conclusions of law and to a clear error standard of review for findings of fact. In re Goody’s Family
Clothing Inc., 610 F.3d 812, 816 (3d Cir. 2010). Specifically, a bankruptcy court’s approval of a
settlement is reviewed only for abuse of discretion. Will v. Nw. Univ. (In re Nutraquest, Inc.), 434
F.3d 639, 644 (3d Cir. 2006).
I. The Lower Courts Properly Determined High Rocks Could Sell the Property Free
and Clear of Highway’s Leasehold Interests.
This Court should affirm the Thirteenth Circuit’s decision because, by its plain meaning,
section 363(f) applies to this case while section 365(h) does not. The fact that section 365(h)
governs the rejection of unexpired leases is no basis upon which to conclude that sections 363(f)
and 365(h) conflict. Precision Indus. v. Qualitech Steel SBQ, LLC, 327 F.3d 537, 547 (7th Cir.
2003). The fundamental purpose of Chapter 11 of the Bankruptcy Code is to allow for a successful
reorganization of the debtor’s matters, thereby “prevent[ing] a debtor from going into liquidation,
Team R2
7
with an attendant loss of jobs and possible misuse of economic resources.” NLRB v. Bildisco &
Bildisco, 465 U.S. 513, 527 (1984) (citing H.R. Rep. No. 95-595, at 220 (1977), reprinted in 1978
US.C.C.A.N. 5963, 6180)). Chapter 11 of the Bankruptcy Code strikes a balance between two
competing interests: (1) a debtor’s interest in successfully reorganizing and restructuring its debts
and (2) a creditor’s interest in maximizing the value of the bankruptcy estate. Fla. Dep’t of Revenue
v. Piccadilly Cafeterias, Inc, 128 S. Ct. 2326, 2339 (2008). To enable trustees and debtors-in-
possession to pursue the goal of maximizing the value of the estate while successfully
rehabilitating the debtor, Congress authorizes a trustee to sell property free and clear of any
interests in select situations. 11 U.S.C. § 363(f) (2012).
A. The Plain Meaning of Section 363(f) Compels its Application.
To hold that section 365(h) trumps 363(f), when there is no rejection, ignores the plain
meaning and contravenes statutory interpretation. Statutory interpretation must begin with the
statute’s language. Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 438 (1999). Ordinary,
contemporary, common meanings define words in all statutory construction unless ambiguous or
otherwise defined by statute. Pioneer Inv. Servs. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380,
388 (1993); Qualitech, 327 F.3d at 544. This Court has long presumed that “a legislature says in a
statute what it means and means what it says there.” United States v. Ron Pair Enters., 489 U.S.
235, 241 (1989); United States v. Goldenberg, 168 U.S. 95, 103–03 (1897); Oneale v. Thorton, 10
U.S. 53, 68 (1810). Judicial inquiry is complete where, as here, the statute’s language is clear. Ron
Pair Enters., 489 U.S. at 241. Once judicial inquiry is complete, “the sole function of the courts is
to enforce [the statute] according to its terms.” Id. (citing Caminetti v. United States, 242 U.S. 470,
485 (1917)).
Team R2
8
1. Section 363(f) entitles High Rocks to sell the property free and clear of
Highway’s leasehold interest.
Section 363(f) plainly makes clear that any property, under specified conditions, may be
sold unencumbered of any interests held by others. This includes a lessee’s leasehold interest:
The trustee may sell property under subsection (b) or (c) of this section free and clear of
any interest in such property of an entity other than the estate, only if—
(1) applicable nonbankrupcy law permits sale of such property free and clear of
such interests;
(2) such entity consents;
(3) such interest is a lien and the price at which such property is to be sold is greater
than the aggregate value of all liens on such property;
(4) such interest is in bona fide dispute; or
(5) such entity could be compelled, in a legal or equitable proceeding, to accept a
money satisfaction of such interest.
§ 363(f) (emphasis added). In the case of Chapter 11 bankruptcy, the debtor-in-possession is
granted the powers and obligations of the trustee and may sell property free and clear of any
interest in specified circumstances. Id.; 11 U.S.C. § 1107(a) (2012). While the Bankruptcy Code
does not define “any interest,” the combination of the ordinary meanings of “any” and “interest”
compel an inclusive interpretation to include a lessee’s possessory interest for the term of its lease.
Qualitech, 327 F.3d at 545; 3 Collier on Bankruptcy ¶ 363.06[1] (Alan N. Resnick & Henry J.
Sommer eds., 16th ed. rev. 2017). Black’s Law Dictionary broadly defines “interest” to mean “[a]
legal share in something; all or part of a legal or equitable claim to or right in property.” Interest,
BLACK’S LAW DICTIONARY (10th ed. 2014). By its plain, ordinary meaning, “‘interest’
comprehends all forms of real and personal property.” Russello v. United States, 464 U.S. 16, 21
(1983). Applying the ordinary meaning of “interest,” its scope encompasses the possessory interest
of a lessee for the term of the lease. See Qualitech, 327 F.3d at 545; Interest, BALLENTINE’S LAW
DICTIONARY (3d ed. 2010) (defining leasehold as “[a]n interest in real estate.”). Moreover,
Congress ensured “interest” possesses an expansive interpretation with the inclusion of the word
Team R2
9
“any.” United States v. Gonzales, 520 U.S. 1, 5 (1997) (stating “‘any’ has an expansive meaning”
that is all-inclusive when Congress does not add any language limiting the scope of that word).
The term “any interest” incorporates other obligations that may connect to or arise from
the ownership of property, including Highway’s possessory interest. The First, Second, Third,
Fourth, Seventh, and Thirteenth circuits have followed the trend in applying an expansive reading
to the term “any interest”—going well beyond in rem property—because Congress did not include
express language to limit the scope of section 363(f). See R. at 10; Ind. State Police Pension Trust
v. Chrysler LLC (In re Chrysler LLC), 576 F.3d 108, 126 (2d Cir. 2009), cert. granted and vacated
on other grounds, 558 U.S. 1087 (2009); Qualitech, 327 F.3d at 545; In re TWA, 322 F.3d 283,
289–90 (3d Cir. 2003); U. Mine Workers of Am. 1992 Benefit Plan v. Leckie Smokeless Coal Co.
(In re Leckie Smokeless Coal Co.), 99 F.3d 573, 581–82 (4th Cir. 1996); Mass. Dep’t of
Unemployment Assistance v. OPK Biotech, LLC (In re PBBPC, Inc.), 484 B.R. 860, 869 (B.A.P.
1st Cir. 2013). Courts have even gone so far as to include successor liability flowing from
ownership of property as an interest encompassed within the scope of section 363(f). See In re
TWA, 322 F.3d at 289–90; In re Leckie Smokeless Coal, 99 F.3d at 581–82. The scope of section
363(f) includes successor liability because a purchaser of coal assets could be liable by the fact
that the use of those assets led to the liability. See In re Leckie Smokeless Coal, 99 F.3d at 581–82.
A leasehold interest readily fits within this expansive meaning of “any interest” as the interest
stems from a lessee’s right to possess the property for the term of the lease. Qualitech, 327 F.3d at
545. The leasehold interest is “not simply a right that is connected to or arising from the property,
but a limited right to the property itself.” Id. (citations omitted).
Highway’s rights under the lease fall well within the scope of section 363(f)’s “any
interest.” See Qualitech, 327 F.3d at 545. Highway’s leasehold interest exceeded the requirement
Team R2
10
that the interest arise from or connect to the property as it was a limited right to the property itself.
See Russello, 464 U.S. at 21; R. at 5, 10; Qualitech, 327 F.3d at 545; In re Leckie Smokeless Coal,
99 F.3d at 582. The lease established a limited right to the property when the lease began at the
completion of the amphitheater. R at 5, 10; Qualitech, 327 F.3d at 545. Both parties “stipulated
that one or more of [section 363(f)] requirements had been satisfied.” R at 9 n.6. With this
stipulation and Highway’s leasehold interest falling within section 363(f), High Rocks is able to
sell the property free and clear of Highway’s leasehold interest.
2. Section 363(e) allows Highway to continue possession of the property
under its lease; Highway failed to request it.
Highway could—but did not—request adequate protection, allowing it to retain possession
of the amphitheater. See 11 U.S.C. § 363(e) (2012). Upon the request of a party with an interest in
the property, the bankruptcy court must “prohibit or condition such . . . sale . . . as is necessary to
provide adequate protection.” Id. Adequate protection includes any relief, other than compensation
as an administrative expense that will “result in the realization by such entity of the indubitable
equivalent” of the terminated leasehold interest. 11 U.S.C. § 361(3) (2012). Congress codified a
broad definition of adequate protection as an aggressive and powerful remedy against abuses of
section 363 free and clear sales. Pinnacle Rest. at Big Sky, LLC v. CH SP Acquisitions (In re
Spanish Peaks Holdings II, LLC), 872 F.3d 892, 900 (9th Cir. 2017); In re O’Connor, 808 F.2d
1393, 1398 (10th Cir. 1987). Congress sought to balance the conflicting goals of the interest holder
seeking the benefit of its bargain against the debtor’s ability to restructure and reorganize its debts.
See H.R. Rep. No. 95-595, 379. Adequate protection provides a balance between the conflicting
goals by offering an “alternative means” of protecting an interest. In re O’Connor, 808 F.2d at
1398. This way, the interest holder “receives in value essentially what he bargained for.” Id.
Because a lessee’s leasehold interest qualifies as an “interest” in the property for the purposes of
Team R2
11
section 363(f), a lessee has the right to insist that its interest be protected. § 363(e); Qualitech, 327
F.3d at 547–48.
Adequate protection may take the form of continued possession, providing the lessee with
what it bargained for. See Dishi & Sons v. Bay Condos LLC, 510 B.R. 696, 711–12 (Bankr.
S.D.N.Y. 2014); In re Haskell L.P., 321 B.R. 1, 10 (Bankr. D. Mass. 2005). A bar operator, who
leased the property from the debtor-lessor, requested and was granted adequate protection in the
form of continued possession. Dishi & Sons, 510 B.R. at 699, 712. Adequate protection was
necessary because of the debtor’s underwater mortgage on the property, where the debtor owed
more than the property was worth, and the nature of the lessee’s leasehold interest. Id. Likewise,
in a separate case, adequate protection could only take the form of continued possession due to the
debtor’s underwater mortgage on the property and the nature of the lessee’s ninety-nine year lease.
In re Haskell, 321 B.R. at 4, 10.
If Highway simply requested adequate protection under section 363(e), it could have been
granted continued possession as High Rocks owed more than it received in selling the property
and Highway possessed a thirty-year lease interest. See R. at 4–6; § 363(e). High Rocks originally
received a loan for $800 million from North Country. R. at 4. When North County sold its note to
4th Street, it did so at a “sizable discount.” R. at 5. 4th Street purchased the property with its credit
bid under section 363(k). R. at 7; § 363(k). High Rocks owed much more than it received from 4th
Street’s credit bid. See R. at 5, 7; Dishi & Sons, 510 B.R. at 699, 712; In re Haskell, 321 B.R. at
4, 10. The combination of High Rocks’ underwater mortgage and Highway’s leasehold interest
could only be protected by continued protection. See R. at 5, 7; Dishi & Sons, 510 B.R. at 699,
712; In re Haskell, 321 B.R. at 4, 10. However, Highway failed to request adequate protection and
thus it could not receive continued possession. R. at 14; § 363(e).
Team R2
12
3. Congressional policy of section 363(f) favors a free and clear sale.
The expansive scope and flexibility of section 363 free and clear sales bolster the
fundamental goals embodied in the Bankruptcy Code: maximizing the value of the estate for
creditor recovery and rehabilitating the debtor. See H.R. Rep. No. 95-595, 5. The flexibility of
Chapter 11 represents the preference to enable a debtor to continue to operate, reorganize, or sell
its business while concern grows rather than simply liquidate a troubled business.2 7 Collier on
Bankruptcy ¶ 1100.01 (Alan N. Resnick & Henry J. Sommer eds., 16th ed. rev. 2017). Section
363(f) must be interpreted broadly to faithfully abide with Congress’s intention to avoid “rigid and
technical definitions drawn from other areas of law. . . .” Russello, 464 U.S. at 21. A section 363(f)
sale receives greater value by selling unencumbered property, achieving Congressional policy
objectives. See Qualitech, 327 F.3d at 548. The possibility of selling the property free and clear of
Highway’s leasehold interest was a crucial inducement for 4th Street purchasing High Rocks’
assets. See R. at 5–6. Had the sale not been free and clear, High Rocks would not have been able
to fund its bankruptcy and would have lost its property in foreclosure upon dismissal. See id.; 11
U.S.C. §§ 362(c)(2)(B), 1112(b)(1) (2012). A scenario barring a section 363 sale would disregard
both fundamental goals of bankruptcy: High Rocks would be unable to successfully rehabilitate
itself, and the foreclosure would minimize the value of the estate to the detriment of other creditors.
See H.R. Rep. No. 95-595, 5. Allowing the free and clear sale under section 363(f) is the only way
to achieve both goals as Congress intended.
2 The Code expressly allows a debtor to use Chapter 11 to sell substantially all of its assets. See 11 U.S.C. §§
1123(b)(4), 1141(d)(3) (2012).
Team R2
13
B. Section 365(h) Does Not Create Substantive Rights Nor Grant Absolute
Immunity from Section 363 Sales Unless There is a Formal Rejection.
Interpreting section 365(h) to conflict with section 363(f)—when there is no rejection––
would undermine Congress’s express intention to bestow additional rights to tenants only when
there is a rejection of an unexpired lease. As this Court has stated, “courts are not at liberty to pick
and choose among congressional enactments, and when two statutes are capable of co-existence,
it is the duty of the courts, absent a clearly expressed congressional intention to the contrary, to
regard each as effective.” Morton v. Mancari, 417 U.S. 535, 551 (1974). Statutes must be read “to
give effect to each if we can do so while preserving their sense and purpose.” Watt v. Alaska, 451
U.S. 259, 267 (1981). It has long been the Court’s duty “to give effect, if possible, to every clause
and word of a statute.” Duncan v. Walker, 533 U.S. 167, 174 (2001) (quoting United States v.
Menasche, 348 U.S. 528, 538–39 (1955)). To ignore the rejection requirements specified within
section 365 would deviate from the canons of statutory interpretation that this Court has long
followed.
1. High Rocks declined to reject Highway’s Lease because it did not file a
formal motion to reject the lease as required by section 365(h).
Congress makes clear that a lessee only gains the protections of section 365(h) in the event
the debtor-lessor “rejects an unexpired lease of real property.” 11 U.S.C. § 365(h) (2012)
(emphasis added). A Chapter 11 debtor-in-possession may assume or reject a lease “at any time
before the confirmation of a plan.” § 365(d)(2). Congress established two specific ways an
unexpired lease may be rejected in the context of a Chapter 11 bankruptcy, neither which are
present in this case: (1) a court approved rejection, and (2) a deemed rejection by a debtor-lessee.
§§ 365(a), 365(d)(4). Further, rejection cannot be defined in isolation but rather within the context
of section 365’s comprehensive statutory scheme. United Sav. Ass’n of Tex. v. Timbers of Inwood
Forest Assocs., 484 U.S. 365, 371 (1987) (“Statutory construction . . . is a holistic endeavor.”). A
Team R2
14
debtor-in-possession, see § 1107(a), may assume or reject any unexpired lease only subject to court
approval. § 365(a). “[Section 365(h)] strikes a balance between the respective rights of the debtor-
lessor and its tenant: the lessee retains the right to possess the property for the remainder of the
term it bargained for, while the rejection frees the debtor-lessor of other burdensome obligations
that it assumed under the lease.” Qualitech, 327 F.3d at 546. Congress specified section 365(h)
applies to rejections; “[Congress] says in a statute what it means and means what it says there.”
Ron Pair Enters., 489 U.S. at 241.
Whether a rejection occurs under section 365(h) hinges on the debtor-lessor following the
formal court procedures to reject an unexpired lease. See § 365(a). The only way a debtor-lessor
can properly reject an unexpired lease in a Chapter 11 bankruptcy is by filing a motion with the
court to do so and the court granting said motion. See §§ 365(a), (d). The Code provides three
options for how a debtor-lessor may treat an unexpired lease under section 365(h): assume the
lease, reject the lease, or take no action on the lease. See § 365(a); Bildisco & Bildisco, 465 U.S.
at 546 n.12; 3 Collier on Bankruptcy ¶ 365.03[6]. In the event the lease is neither assumed nor
rejected, the lease and any leasehold interests will “ride though” the Chapter 11 bankruptcy and
continue to burden the former debtor unless sold free and clear in a section 363(f) sale. See Bildisco
& Bildisco, 465 U.S. at 546 n.12.
Congress intended explicit, formal procedures to govern both a court-approved rejection
and a court-approved sale. See H.R. Rep. No. 95-595, 295. Congress tasked the Rules of
Bankruptcy to develop both of the procedures. See id.3 Congress did not intend for the procedures
3 H.R. Rep. No. 95-595, 295 (“The following table lists matters that will be dealt with by the Rules of Bankruptcy
Procedure or by Local Rules of Court: . . . (53) Procedure for trustee or debtor in possession to sell property free and
clear of liens or other interests including valuation of property and competing interests; . . . (59) Procedure for court
approval of trustee’s assumption or rejection of executory contracts or unexpired leases including the method of
initiating such approval and any notice required . . . .” ).
Team R2
15
to reject an unexpired lease to be the same as the procedures to sell a property free and clear. See
id. Section 365 must be read together with Bankruptcy Rule 6006, which oversees motions to
assume, reject, or assign an unexpired lease. Fed. R. Bankr. P. 6006 (emphasis added). Further,
notice must be given to the other party of the lease for the motion to reject to be valid. Fed. R.
Bankr. P. 6006(c). A different rule–– Bankruptcy Rule 6004––governs the “motion for authority
to sell property free and clear of liens or other interests.” Fed. R. Bankr. P. 6004(c). Both rules
consider the matters as contested matters that require a formal motion with reasonable notice and
opportunity for a hearing pursuant to Bankruptcy Rule 9014. Fed. R. Bankr. P. 6004(b); Fed. R.
Bankr. P. 6006(a); Fed. R. Bankr. P. 9014. The motions must also state “with particularity the
grounds therefor.” Fed. R. Bankr. P. 9013. The assumption or rejection procedures mandated by
the bankruptcy rules recognize and protect the due process rights affecting entities. Mullane v.
Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950) (“An elementary and fundamental
requirement of due process in any proceeding which is to be accorded finality is notice reasonably
calculated, under all circumstances, to apprise interested parties of the pendency of the action and
afford them an opportunity to present their objections.”). A motion to sell a property free and clear
of interest, governed by Rule 6004, does not provide adequate notice of a rejection as required by
the bankruptcy rules. See id. A debtor-lessor cannot reject an unexpired lease without filing an
express, formal motion to reject the unexpired lease with the court and without court approval.
Fed. R. Bankr. P. 6006.
When the debtor-in-possession fails to file a formal motion to reject an unexpired lease and
fails to gain court approval of the motion, there is no rejection under section 365(h). See In re
Spanish Peaks Holdings, 872 F.3d at 899 (“Where there is a sale, but no rejection (or a rejection,
but no sale), there is no conflict.”); Qualitech, 327 F.3d at 546; 10 Collier on Bankruptcy
Team R2
16
¶ 6006.01[e] (Alan N. Resnick & Henry J. Sommer eds., 16th ed. rev. 2017). An overwhelming
number of circuit courts have held, other than in a confirmed plan, an intention to assume or reject
an unexpired lease must manifest through a formal motion to assume or reject in accordance to the
requirements of Rules 6006(a), 9014, and 9013. See, eg., R. at 12; In re Spanish Peaks Holdings,
872 F.3d at 899; Mason v. Official Comm. of Unsecured Creditors (In re FBI Distrib. Corp.), 330
F.3d 36, 45 (1st Cir. 2003) (executory contract cannot be assumed by “unilateral acts of the debtor-
in-possession during the reorganization of the business” but rather only with express approval of
the court); Century Indem. Co. v. NGC Settlement Trust (In re Nat’l Gypsum Co.), 208 F.3d 498,
513 (5th Cir. 2000) (an intent to assume could only be provided to the non-debtor through the
confirmation process or by separate motion); S. St. Seaport Ltd. P’ship. v. Burger Boys (In re
Burger Boys), 94 F.3d 755, 763 (2d Cir. 1996) (“[A]ssumption of a lease must be done, as
suggested by the Bankruptcy Rules, through a formal motion to the court.”); In re James Wilson
Assocs., 965 F.2d 160, 165 (7th Cir. 1992) (“No formal motion was filed asking that the bankruptcy
judge approve the assumption, as the bankruptcy rules require.”); Dataprose, Inc. v. Amerivision
Communs., Inc. (In re Amerivision Communs., Inc.), 349 B.R. 718, 722 (B.A.P. 10th Cir. 2006)
(specific notice of intent is required through confirmation process or by separate motion).
For debtor-lessors, there is no functional equivalent of a rejection under section 365; only
a formal rejection provides the tenant additional protections of section 365(h). See § 365(a), (d).
Both circuit courts, which have analyzed the present issue before the Court and found
section 365(h) was not implicated, dealt with situations where the trustee did not formally reject
an unexpired lease prior to selling the property free and clear under section 363(f). In re Spanish
Peaks Holdings, 872 F.3d at 899; Qualitech, 327 F.3d at 547; see also In re R.J. Dooley Realty,
Inc., No. 09-36777, 2010 Bankr. LEXIS 1791, *20 (Bankr. S.D.N.Y. May 21, 2010); In re
Team R2
17
Downtown Athletic Club of N.Y. City, No. M-47 (JSM), 2000 U.S. Dist. LEXIS 7917, *13 (Bankr.
S.D.N.Y. June 9, 2000). Substantially all of the bankruptcy courts, which have reached the
conclusion that section 365(h) trumps section 363(f), dealt with situations where the debtor did in
fact formally and expressly filed a motion to reject the unexpired lease before filing a motion to
sell free and clear. See, e.g., IDEA Boardwalk, LLC v. Revel Entm’t Grp. (In re Revel AC, Inc.),
532 B.R. 216, 221 (Bankr. D.N.J. 2015); In re Crumbs Bake Shop, Inc., 522 B.R. 766, 769 (Bankr.
D.N.J. 2014) (rejecting unexpired leases of intellectual property under § 365(n)); In re Zota
Petroleums, LLC, 482 B.R. 154, 163 (Bankr. E.D. Va. 2012); In re Haskell, 321 B.R. at 3; In re
Churchill Props. III, Ltd. P’ship, 179 B.R. 283, 284 (Bankr. N.D. Ill. 1996); In re Lee Rd. Partners,
155 B.R. 55, 58 (Bankr. E.D.N.Y. 1993).
High Rocks did not expressly and formally reject Highway’s lease. See R at 7. Like the
circuit court cases, High Rocks did not file a motion to reject the lease with any court and no court
approved any rejection of the lease. See R at 6–7; In re Spanish Peaks Holdings, 872 F.3d at 899;
Qualitech, 327 F.3d at 547. Motions to sell are different from motions to reject an unexpired lease.
See Fed. R. Bankr. P. 6004, 6006. The only motion High Rocks filed was a “motion to sell
substantially all of its assets ‘free and clear of all liens, encumbrances, and interests’ pursuant to
section 363(f).” R at 6. Without a formal motion to reject Highway’s unexpired lease filed in
accordance with the requirements of Rules 6006(a), 9014, and 9013, section 365(h) is not
implicated.
2. As a debtor-lessor, High Rocks does not fall under the narrow
exception of a deemed rejection.
Nothing in the legislative history of section 365(h) suggests a congressional intent to bar
the sale of property by a debtor-lessor when there is no formal rejection. On the contrary, the
legislative history of section 365 demonstrates Congress required the court’s approval for the
Team R2
18
express and formal rejection of an unexpired lease. See Bankruptcy Reform Act of 1994, Section-
by-Section Analysis, 140 Cong. Rec. H10,752-01, at *H107767 (daily ed. Oct. 4, 1994) (“This
section clarifies section 365 of the Bankruptcy Code to mandate that lessees cannot have their
rights stripped away if a debtor rejects its obligation as a lessor in bankruptcy. . . .”) (emphasis
added). Congress intentionally provides an extremely narrow exception specifically for debtor-
lessees to the requirement of a formal rejection in a Chapter 11 bankruptcy: the deemed rejection.
See § 365(a) (“[e]xcept as provided . . . in subsection[] . . . (d) of this section . . . .” ); § 365(d)(4)
(“[A]n unexpired lease of nonresidential property under which the debtor is the lessee shall be
deemed rejected. . . if the trustee does not assume or reject the unexpired lease by . . . 120 days
after the date of the order for relief. . . .” (emphasis added)). “[W]here Congress includes particular
language in one section but omits it in another section of the same Act, it is generally presumed
that Congress acts intentionally and purposely in the disparate inclusion or exclusion.” Russello,
464 U.S. at 23 (citations omitted) (internal quotation marks omitted). Congress could have
extended the deemed rejection to debtor-lessors, but it did not. See § 365(d)(4). Thus, applying
deemed rejections to debtor-lessors would rewrite the rules that Congress affirmatively and
specifically enacted. See Mobil Oil Corp. v. Higginbotham, 436 U.S. 618, 625 (1978).
The evolution of the statutory provisions of section 365 further evidences that Congress
intended a deemed rejection to be limited to only debtor-lessees. See H.R. Rep. No. 95-595, 4–5.
Congress worked nearly ten years in modernizing and codifying the bankruptcy laws, making
significant changes to the substantive and procedural laws of bankruptcy. See U.S. Const. art. I,
§ 8, cl. 4; Ron Pair Enters., 489 U.S. at 240; H.R. Rep. No. 95-595, 3. Section 70(b) of the
Bankruptcy Act, the predecessor to section 365, provided that “[w]ithin sixty days after the
adjudication, the trustee shall assume or reject any executory contract, including unexpired leases
Team R2
19
of real property. . . . Any such contract or lease not assumed or rejected within such time . . . shall
be deemed to be rejected.” 11 U.S.C. §110(b) (repealed 1978) (emphasis added); 3 Collier on
Bankruptcy ¶ 362.LH. The 1978 codification of the Bankruptcy Code did not address when a
deemed rejection applied. Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, 92 Stat. 2549,
2576. After the codification, landlords faced the heavy burden of debtor-lessees who vacated the
premises, ceased paying rent, and declined to assume or reject its lease prior to confirming its plan.
130 Cong. Rec. H7489 (June 29, 1984) (statement of Senator Hatch), reprinted in 1984
U.S.C.C.A.N. 576, 598–99; Michael T. Andrew, Real Property Transactions and the 1984
Bankruptcy Code Amendments, 20 Real Prop. Prob. & Tr. J. 47 (1985). Due to these problems,
Congress placed time limits on the assumption and rejection of unexpired leases in Chapter 11
cases––but only for debtor-lessees. § 365(d)(4); Act of July 10, 1984, Pub. L. No. 98-353, 98 Stat.
333. Congress limited the scope of a deemed rejection to only unexpired leases of debtor-lessees.
See § 365(d)(4). There is no reason to suspect that Congress meant a deemed rejection apply to
more than a Chapter 11 debtor-lessee when section 365(d)(4) specifically refers to it applying only
to a debtor-lessee. See Ron Pair Enters., 489 U.S. at 241.
Even if there is a gap in the law by the omission of debtor-lessors within section 365(d)(4),
“[t]here is a basic difference between filling a gap left by Congress’ silence and rewriting rules
that Congress has affirmatively and specifically enacted.” Mobil Oil Corp., 436 U.S. at 625. The
American Bankruptcy Institute (“ABI”) completed a three-year, in-depth study of recommended
reforms to the now forty-year-old Bankruptcy Code, focusing on Chapter 11. D.J. Baker et al.,
Commission to Study the Reform of Chapter 11: 2012~2014 Final Report and the
Recommendations, Am. Bankr. Inst. 1 (2014), http://commission.abi.org/full-report. The ABI
recognized the gap in the law and recommended that a trustee
Team R2
20
be permitted to sell the debtor’s assets free and clear of . . . unexpired leases only to the
extent such . . . leases are rejected in accordance with section 365 . . . and the trustee is
permitted by section 365 to recover the property free and clear of the nondebtor
counterparty’s rights to use or possess such property.
Id. at 142. If Congress accepts the ABI’s recommendation to amend section 363(f), then a debtor-
lessor would have to formally reject the unexpired lease before it could sell its property free and
clear under section 363(f). See id. Congress has not made any amendments to section 363 since
2010, and this Court must therefore follow the affirmatively and specifically enacted provisions.
Duncan, 533 U.S. at 174.; Bankruptcy Technical Corrections Act of 2010, Pub. L. No. 111-327,
124 Stat. 3557, 3559.
High Rocks is the lessor of the property, and Highway is the lessee. R. at 5. As a debtor-
lessor, High Rocks is not subject to a deemed rejection if it fails to formally assume or reject the
unexpired lease within the time limit. § 365(d)(4).
C. Because High Rocks Filed for Bankruptcy Prior to the Completion of the
Amphitheater, Section 365(g)(1) Bars the Application of Rights Granted
Under Section 365(h).
Even if the motion to sell free and clear provided Highway with sufficient notice of the
rejection to satisfy the requirements of Rule 6006, the application of section 365(h)(1)(A)(ii) is
barred because Highway’s lease commenced after High Rocks filed for Chapter 11 bankruptcy.
The Code specifically defines the effect of a rejection, including when one is deemed to occur. See
§ 365(g). A rejection constitutes a breach of such lease immediately before the date of filing of the
petition. § 365(g)(1). If a tenant fails to seek adequate protection under section 363(e), section
365(h)(1)(A)(ii) becomes the sole and exclusive remedy to continue possession after the rejection
of its lease. See § 365(h)(1)(A)(ii). However, the term of such lease must have commenced before
a tenant may avail itself to the tenant protections provided by section 365(h). Id. (“[I]f the term of
such lease has commenced, the lessee may retain its rights under such lease . . . .”). A lease’s term
Team R2
21
cannot commence until it begins. See Commence, Merriam-Webster Dictionary (11th Ed. 2003)
(defining “commence” to mean “begin; start.”). Congress intended to ensure tenants would “not
be deprived of [their] estate for the term for which [they] bargained” and to allow the tenant to
“remain in possession of the leased property.” H.R. Rep. No. 95-595, 349 (emphasis added). If the
lease had not commenced immediately prior to the time the bankruptcy was filed, there would be
nothing to remain in possession of or to protect. See § 365(g)(1). While a rejection does not alter
the substantive rights of the parties to the rejected lease, commencing the lease does alter those
rights when seeking protection under section 365(h). See § 365(h)(1)(A)(ii); In re Flagstaff Realty
Assocs., 60 F.3d 1031, 1034 (3d Cir. 1995); 3 Collier on Bankruptcy ¶ 365.11. Only when a lease
begins and the lease is subsequently rejected can a lessee gain the rights and protections of
continued possession. See § 365(h)(1)(A)(ii). However, if the lease did not yet begin when the
owner of the property filed for bankruptcy, the protections are unavailable. See id.; § 365(g)(1).
Although there are limits on section 365(h) protection, Congress implements a strong shield
through section 363(e) for lessees whose leases begin after bankruptcy is filed. See § 363(e).
Highway had not begun the terms of its lease when High Rocks filed for Chapter 11
bankruptcy and could not avail itself to the protections under section 365(h) even in the unlikely
possibility High Rocks formally rejected the lease. See § 365(h)(1)(A)(ii), (g)(1). Prior to
beginning construction, Highway signed a thirty-year lease to market, manage, and operate the
amphitheater for the duration of the lease. R. at 5. The term of the lease depended on a completed
and operating amphitheater that Highway could market, manage, and operate. Id. Moreover,
Highway agreed to pay High Rocks a portion of the ticket and concession sales, which depended
on a completed and operating amphitheater. Id. Construction of the amphitheater was finally
completed in November of 2016, over two years after the construction commenced, and operation
Team R2
22
was ready to begin. R. at 4, 6. The thirty-year term of the lease began in November of 2016 with
the completion of the amphitheater. See R. at 5. However, High Rocks filed for Chapter 11
bankruptcy in July of 2016. Id. The date of the rejection occurred immediately before July of 2016.
See § 365(g)(1). As of July of 2016, five months remained until the lease began; Highway could
not seek protection under section 365(h) until that time due to section 365(g). See §
365(h)(1)(A)(ii), (g)(1). Highway could have sought adequate protection under section 363(e),
which does not have the timing constraints of section 365(h), and would have received it. § 363(e).
Highway failed to simply request adequate protection, removing the only remedy available to
retain possession of the property. R. at 14; see § 363(e).
II. The Non-Estate Committee Settlement, Unquestionably Fair and Equitable,
Promotes Significant Code-Related Objectives.
The Thirteenth Circuit Court of Appeals properly granted the Committee Settlement
because 4th Street’s gift was never part of the bankruptcy estate, and thus the absolute priority rule
does not apply. Even if the money became a part of the estate, the absolute priority rule still would
not apply because the Committee Settlement is fair and equitable and achieves the significant
Code-related objectives of bankruptcy. Prior to the codification of the Bankruptcy Code, courts
allowed settlements during bankruptcy proceedings so long as the courts were able to determine
that the settlement was “fair and equitable” to the parties involved. See Protective Comm. for
Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 434 (1968); Motorola,
Inc. v. Official Comm. of Unsecured Creditors (In re Iridium Operating LLC), 478 F.3d 452, 461–
62 (2d Cir. 2007). After the codification, bankruptcy courts continue to possess the authority to
“approve a compromise or settlement.” Fed. R. Bankr. P. 9019(a). Settlements are, in fact, favored
in bankruptcy because they minimize litigation and expedite the administration of a bankruptcy
estate, both significant policy objectives. Yacovi v. Rubin & Rudman, L.L.P. (In re Yacovi), 411
Team R2
23
Fed. App’x 342, 346 (1st Cir. 2011); Myers v. Martin (In re Martin), 91 F.3d 389, 393 (3d Cir.
1996); 10 Collier on Bankruptcy ¶ 9019.01[1].
A. The Committee Settlement is Not and Will Never Become Part of the Estate.
While the priority scheme is an important facet of bankruptcy, a bankruptcy plan may only
distribute “property of the estate.” 11 U.S.C. § 1123(a)(5) (2012). The Code expressly specifies
creditors only receive property “under the plan,” clearly indicating that money outside the
bankruptcy estate remains unaffected by the absolute priority rule. 11 U.S.C. § 1129(b)(2)(B)(ii)
(2012). Property of the estate must be the debtor’s property, not another’s property. See 11 U.S.C.
§ 541(a) (2012). An estate, created when the debtor files for bankruptcy, comprises all of the
debtor’s legal and equitable interest in property held when the case begins, including “proceeds . .
. of or from property of the estate.” § 541(a)(1), (6). However, the Code explicitly states “any
power that the debtor may exercise solely for the benefit of another” is not property of the estate.
§ 541(b)(1). Congress ensured “power,” as used in this context, possesses an expansive
interpretation with the inclusion of the word “any.” See Gonzales, 520 U.S. at 5. Power, defined
as “the authority to act,” includes the ability to pursue litigation and should be interpreted
according to this plain meaning. See Pioneer Inv. Servs., 507 U.S. at 388; Power, BALLENTINE’S
LAW DICTIONARY (3d ed. 2010).
When the money to fund the settlement comes from outside the estate, it remains outside
the estate. See In re LCI Holding Co., 802 F.3d 547, 551 (3d Cir. 2015); In re Iridium Operating,
478 F.3d at 457, 459; In re World Health Alts., 344 B.R. 291, 297 (Bankr. D. Del. 2006). To
remove any objections to a section 363 sale in LCI Holdings Co., a section 363 purchaser provided
a settlement, funded by its own money, to a debtor’s unsecured creditor’s committee. 802 F.3d at
551. The court declined to include the settlement funds in the estate because the money did not at
any time belong to the debtor’s estate nor would it ever become part of its estate. Id. at 555; see
Team R2
24
also In re World Health Alts., 344 B.R. at 294–95, 297 (holding a settlement is not part of the
estate when the stalking-horse provided a settlement from its own funds directly to the debtor’s
unsecured creditors in a litigation fund). A settlement funded by a debtor’s cash collateral, on the
other hand, was considered property of the estate. In re Iridium Operating, 478 F.3d at 461. Here,
4th Street provided its own funds to the unsecured creditors’ litigation trust. R. at 8. These funds,
offered directly and solely for the benefit of the unsecured creditors, were never part of High
Rocks’ estate and never became part of the estate. See id.; In re LCI Holding, 802 F.3d at 555; In
re World Health Alts., 344 B.R. at 297.
Additionally, even if the unsecured creditors succeeded in litigating claims against Skyline,
the proceeds would never be property of the estate. See § 541(b)(1). The assignment of the
proceeds from litigation claims to another party makes any exercise in pursuing the claims solely
for the benefit of the assignee. See id. Similar to liability proceeds from insurance policies, the
debtor must own the proceeds of the litigation claims in order for it to become property of the
estate. See § 541(a)(1); BDA Design Grp., Inc. v. Official Unsecured Creditors’ Comm. (In re
Hearthwood N. I Ass’n), 579 Fed. App’x 369, 371–72 (5th Cir. 2014). An assignment fully
extinguishes the assignor’s rights to proceeds, and any subsequent proceeds are placed in a
constructive trust for the assignee. RESTATEMENT (SECOND) OF CONTRACTS § 341 comment a (Am.
Law Inst. 1981). If a debtor assigns its proceeds to another party, the assignee—the beneficiary—
owns the proceeds, and the bankruptcy estate does not. § 541(b)(1); La. World Exposition, Inc. v.
Fed. Ins. Co. (In re La. World Exposition Inc.), 832 F.2d 1391, 1401 (5th Cir. 1987) (emphasizing
“the distinction between owning a policy and owning the proceeds,” and noting the assignment of
insurance proceeds excludes the proceeds from the estate); In re Napoleon, 551 B.R. 200, 204
(Bankr. E.D.N.C. 2016).
Team R2
25
In this case, High Rocks assigned its litigation claims against Skyline to a litigation trust,
“the sole beneficiaries of which are the unsecured creditors.” R. at 7; In re La. World Exposition,
832 F.2d at 1401. If High Rocks brings legal claims against Skyline, it would do so solely for the
benefit of the unsecured creditors, placing any proceeds outside of the estate. R. at 7; § 541(b)(1).
Due to the assignment, High Rocks will never see any proceeds future litigation against Skyline
may provide. See § 541(b)(1); In re Hearthwood N. I Ass’n, 579 Fed. App’x at 371–72.
B. Nothing in the Settlement Infringes Upon the Jevic Ruling.
The Committee Settlement promotes the significant Code-related objectives that this Court
highlighted in Jevic, and therefore is permissible. Czyzewski v. Jevic Holding, Inc. does not close
the door on using gifting to circumvent the absolute priority rule. See 137 S. Ct. 973, 985 (2017).4
Rather, Jevic creates an additional requirement that a settlement promotes “significant Code-
related objectives” on top of the established “fair and equitable” standard. See id.; TMT Trailer
Ferry, 390 U.S. at 424–25. A bankruptcy court reviews a settlement approval only for abuse of
discretion. In re Nutraquest, 434 F.3d at 644. Under this standard, a court must act “‘with regard
to what is right and equitable under the circumstances and the law, and directed by the reason and
conscience of the judge to a just result.’” EEOC v. Univ. of Pa., 850 F.2d 969, 977 (3d Cir. 1988)
(quoting Langnes v. Green, 282 U.S. 531, 541 (1931)).
Every circuit has applied an iteration of the TMT Trailer Ferry factors to determine if a
settlement was fair and equitable.5 These factors include: (1) the probability of success in litigation;
4 Courts purposefully have avoided broad applications of the gifting doctrine, choosing rather to tailor its holding to
the facts on a case-by-case analysis. See, e.g., Jevic Holding, 137 S. Ct. at 985; In re Iridium Operating, 478 F.3d at
465; In re Armstrong World Indus., Inc., 432 F.3d 507, 514 (3d Cir. 2005); In re World Health Alts., 344 B.R. at 298.
5 For the circuit courts that apply TMT Trailer Ferry reasoning, see In re Moore, 608 F.3d 253, 263 (5th Cir. 2010);
In re Iridium Operating, 478 F.3d at 462; In re Doctors of Hyde Park, Inc., 474 F.3d 421, 426–32 (7th Cir. 2007);
Hicks, Muse & Co. v. Brandt (In re Healthco Int’l), 136 F.3d 45, 50 (1st Cir. 1998); In re Martin, 91 F.3d at 393;
Fishell v. Soltow (In re Fishell), 47 F.3d 1168, 1168 (6th Cir. 1995); Official Comm. of Unsecured Creditors of Bond
v. White Plains Joint Venture (In re Bond), 16 F.3d 408, 408 (4th Cir. 1994); Edwards v. Mazer (In re Edwards), 961
Team R2
26
(2) the likely difficulties in collection; (3) the complexity of the litigation involved, and the
expense, inconvenience and delay necessarily attending it; and (4) the paramount interest of the
creditors. In re Martin, 91 F.3d at 393 (“taking [its] cue” from TMT Trailer Ferry, 390 U.S. at
424–25). The bankruptcy court below analyzed this case and determined the “balance of the TMT
Trailer Ferry factors favored approval of the Committee Settlement.” R. at 15. The bankruptcy
court noted the Committee Settlement provided a “substantial benefit to the estate . . . [by]
avoid[ing] costly, time-consuming, complex and uncertain litigation with 4th Street.” Id. The
Committee Settlement allows High Rocks to successfully reorganize and restructure its debts in
an orderly fashion. See Piccadilly Cafeterias, 128 S. Ct. at 2339. The bankruptcy court also noted
the Committee Settlement allows the unsecured creditors to pursue its claims against Skyline,
which maximizes the value of the estate to the benefit of all creditors. See R. at 15; §541(b)(1);
Piccadilly Cafeterias, 128 S. Ct. at 2339. The parties do not contest the bankruptcy court’s
conclusion that the factors approve the settlement. R. at 15; see In re Nutraquest, 434 F.3d at 644.
Not only does the Committee Settlement meet the fair and equitable standard, but it also
meets Jevic’s new threshold of promoting significant Code-related objectives. Jevic Holding, 137
S. Ct. at 985-86. In Jevic, this Court declined to approve a structured dismissal because it “[was]
attached to a final disposition; [did] not preserve the debtor as a going concern; it [did] not make
the disfavored creditors better off; it [did] not promote the possibility of a confirmable plan . . . .”
Id. at 986. The debtor was required to follow the absolute priority rule because the structured
dismissal, unlike the interim Committee Settlement here, did not promote any significant Code-
F.2d 219, 219 (10th Cir. 1992); Wallis v. Justice Oaks (In re Justice Oaks II, LTD), 898 F.2d 1544, 1549 (11th Cir.
1990); In re Woodson, 839 F.2d 610, 619 (9th Cir. 1988); Drexel Burnham Lambert Inc. v. Flight Transp. Corp. (In
re Flight Transp.), 730 F.2d 1128, 1135 (8th Cir. 1984); In re Andre Chreky, Inc., 448 B.R. 596, 609 (D.D.C. 2011).
Team R2
27
related objectives. R. at 15; Jevic Holding, 137 S. Ct. at 985. However, this Court in Jevic declined
to prohibit interim distributions, which further “significant Code-related objectives that the
priority-violating distributions serve.” Jevic Holding, 137 S. Ct. at 985. The Committee Settlement
satisfies not just one, but most of the Code-related objectives mentioned by this Court that serve
priority-violating distributions. R. at 6, 17.
First, Jevic applies to a final disposition in the bankruptcy proceeding. Jevic Holding, 137
S. Ct. at 986. Because the settlement occurred at the end, rather than the early or even middle
stages of the bankruptcy proceeding, it did not have as strong of an influence on helping to bring
the estate either to a successful reorganization or from going into liquidation. See id. at 985. The
Committee Settlement is “an interim distribution of settlement proceeds to fund a litigation trust
that would press claims on the estate’s behalf.” R. at 6; Jevic Holding, 137 S. Ct. at 985 (citing In
re Iridium Operating, 478 F.3d at 459–60). Permitting the Committee Settlement will not only
minimize litigation claims against 4th Street, which have only been informally alleged, but will
also expedite the administration of the estate. R. at 6, 15; In re Yacovi, 411 Fed. App’x at 346; In
re Martin, 91 F.3d at 393. High Rocks does not need to wait to see whether claims against 4th
Street have merit to continue with its bankruptcy. R. at 6, 15; In re Yacovi, 411 Fed. App’x at 346.
Because these claims are not at the end of the proceedings, their influence on Code-related
objectives carry more weight. See Jevic Holding, 137 S. Ct. at 985.
Second, the Jevic settlement does not promote the possibility of a confirmable plan. Id. at
986. In Jevic, a structured dismissal was the only option for the debtor. Id. at 982. The debtor could
not achieve a confirmable Chapter 11 reorganization or pursue a Chapter 7 reclassification because
there were no funds in the estate and no possibility of an influx of additional funds. Id. The debtor
did not even have the funds to pursue potential claims that might add value to the estate. See id.
Team R2
28
High Rocks, on the other hand, still has the possibility of forming a plan, and the sale helps
facilitate this possibility. R. at 7. In order to maximize the value of the estate, remaining in Chapter
11 is of paramount importance. See Arturo Bris et al., The Cost of Bankruptcy: Chapter 7
Liquidation versus Chapter 11 Reorganization, 61 J. FIN. 1253, 1265 (2006). Chapter 7
bankruptcies average between 0.8% and 38% recovery for secured creditors, whereas Chapter 11
bankruptcies average approximately 87% recovery. See id. If this Court bars the Committee
Settlement, the Committee will renew its objection to the section 363 sale. R. at 7. Then, High
Rocks will be unable to continue funding its bankruptcy, and no one will be able to pursue the
potentially “very valuable” claims against Skyline due to the lack of funds. Id. The Committee
Settlement allows the reorganization to continue and maximizes the potential value collected by
the creditors. Id.
Third, the Jevic settlement does not preserve the debtor as a going concern. Jevic Holding,
137 S. Ct. at 986. Outside of 4th Street, there are no other qualified bidders available to acquire
the assets. R. at 7. The Committee Settlement calls for the Committee to remove its objection to
the section 363 sale. R. at 8. This differs from Jevic, where the settlement agreement specifically
called for a structured dismissal as the only remaining option. See R. at 8; Jevic Holding, 137 S.
Ct. at 982. The Committee Settlement allows High Rocks to continue to pursue a section 363 sale,
leading to a formidable reorganization plan. See R. at 7.
Fourth, the Committee Settlement would benefit Highway as the disfavored creditor
because its administrative claim would be paid before any secured claim. (2012)See Jevic Holding,
137 S. Ct. at 986. Administrative expenses generally do not take priority over secured claims under
the Code, especially where the secured claims are tied to substantially all assets. Hartford
Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 5 (2000) (citing 11 U.S.C. §§
Team R2
29
507(a)(2), 726(a)(1)). The combination of 4th Street’s secured interest and its full section 363(k)
credit bid would ordinarily leave no money to pay Highway’s administrative claim. R. at 4, 7.
However, because High Rocks operates as the trustee under section 1107(a), High Rocks has the
ability to surcharge 4th Street’s collateral pursuant to section 506(c). 11 U.S.C. §§ 506(c), 1107(a).
Highway agreed to pay $2 million, at the request of High Rocks, to complete the amphitheater,
which was necessary to preserve and increase the value of the collateral. R. at 6; see In re Ware,
No. 12-30566-KLP, 2014 Bankr. LEXIS 2437, at *22–24 (Bankr. E.D. Va. June 3, 2014) (holding
section 506(c) could not be used because the funds to repair the property did not provide any
benefit to the secured creditors and paying the funds would have exhausted all the proceeds from
the property to the detriment of the secured creditors). The completion of the amphitheater directly
and indisputably benefited the secured creditor, 4th Street, triggering the trustee’s ability to
surcharge under section 506(c). See § 506(c); Debbie Reynolds Hotel & Casino, Inc. v. Calstar
Corp. (In re Debbie Reynolds Hotel & Casino Corp.), 255 F.3d 1061, 1069 (9th Cir. 2001) (holding
that section 506(c) “authorizes the payment of the proceeds from a surcharge directly to the party
who provided the quantifiable benefit to the secured collateral.”). 4th Street agreed to pay cash for
the assets in the event that it was unable to use its credit bid under section 363(k), guaranteeing
the payment of Highway’s administrative expense and favoring Highway as the disfavored
creditor. Jevic Holding, 137 S. Ct. at 986.
The Committee Settlement plainly distinguishes itself from the limited holding in Jevic
and promotes multiple significant Code-related objectives. The Committee Settlement maximizes
the value of the estate and gives High Rocks the best possible course of action to help alleviate its
stresses caused by its crushing debts. Circumventing the absolute priority rule also significantly
Team R2
30
favors Highway as a disfavored creditor. As such, the lower court did not err in approving the
Committee Settlement and did not abuse its discretion in doing so.
CONCLUSION
In sum, because High Rocks did not formally reject Highway’s lease, Highway could not
seek protection under section 365(h) and High Rocks could sell substantially all of its assets free
and clear of Highway’s leasehold interest. Highway did not have any avenue to continue
possession. This Court should affirm the free and clear sale. In addition, because the Committee
Settlement promoted significant Code-related objectives and was fair and equitable, this Court
should affirm the Committee Settlement.
WHEREFORE, PREMISES CONSIDERED, Respondent respectfully requests that this
Court affirm the decision of the Thirteenth Circuit.
Respectfully submitted,
TEAM R2
COUNSEL FOR RESPONDENT
Team R2
A
APPENDIX A: SELECTED SECTIONS FROM TITLE 11 OF THE U.S. CODE.
§ 361. Adequate Protection
When adequate protection is required under section 362, 363, or 364 of this title of an interest of
an entity in property, such adequate protection may be provided by—
. . .
(3) granting such other relief, other than entitling such entity to compensation
allowable under section 503(b)(1) of this title as an administrative expense, as will
result in the realization by such entity of the indubitable equivalent of such entity’s
interest in such property.
§ 362. Automatic Stay
(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302,
or 303 of this title, or an application filed under section 5(a)(3) of the Securities Investor
Protection Act of 1970, operates as a stay, applicable to all entities, of—
. . .
(c) Except as provided in subsections (d), (e), (f), and (h) of this section—
(1) the stay of an act against property of the estate under subsection (a) of this section
continues until such property is no longer property of the estate;
(2) the stay of any other act under subsection (a) of this section continues until the
earliest of—
(A) the time the case is closed;
(B) the time the case is dismissed; or
(C) if the case is a case under chapter 7 of this title concerning an individual or
a case under chapter 9, 11, 12, or 13 of this title, the time a discharge is
granted or denied;
. . . .
§ 363. Use, Sale, or Lease of Property
(a) In this section, “cash collateral” means cash, negotiable instruments, documents of title,
securities, deposit accounts, or other cash equivalents whenever acquired in which the
estate and an entity other than the estate have an interest and includes the proceeds,
products, offspring, rents, or profits of property and the fees, charges, accounts or other
payments for the use or occupancy of rooms and other public facilities in hotels, motels, or
other lodging properties subject to a security interest as provided in section 552(b) of this
title, whether existing before or after the commencement of a case under this title.
Team R2
A
. . .
(e) Notwithstanding any other provision of this section, at any time, on request of an entity
that has an interest in property used, sold, or leased, or proposed to be used, sold, or leased,
by the trustee, the court, with or without a hearing, shall prohibit or condition such use,
sale, or lease as is necessary to provide adequate protection of such interest. This subsection
also applies to property that is subject to any unexpired lease of personal property (to the
exclusion of such property being subject to an order to grant relief from the stay under
section 362).
(f) The trustee may sell property under subsection (b) or (c) of this section free and clear of
any interest in such property of an entity other than the estate, only if—
(1) applicable nonbankruptcy law permits sale of such property free and clear of such
interest;
(2) such entity consents;
(3) such interest is a lien and the price at which such property is to be sold is greater
than the aggregate value of all liens on such property;
(4) such interest is in bona fide dispute; or
(5) such entity could be compelled, in a legal or equitable proceeding, to accept a
money satisfaction of such interest.
. . .
(k) At a sale under subsection (b) of this section of property that is subject to a lien that secures
an allowed claim, unless the court for cause orders otherwise the holder of such claim may
bid at such sale, and, if the holder of such claim purchases such property, such holder may
offset such claim against the purchase price of such property.
§ 365. Executory Contracts and Unexpired Leases
(a) Except as provided in sections 765 and 766 of this title and in subsections (b), (c), and (d)
of this section, the trustee, subject to the court’s approval, may assume or reject any
executory contract or unexpired lease of the debtor.
. . .
(d)
(1) In a case under chapter 7 of this title, if the trustee does not assume or reject an
executory contract or unexpired lease of residential real property or of personal
property of the debtor within 60 days after the order for relief, or within such
additional time as the court, for cause, within such 60-day period, fixes, then such
contract or lease is deemed rejected.
Team R2
A
(2) In a case under chapter 9, 11, 12, or 13 of this title, the trustee may assume or reject
an executory contract or unexpired lease of residential real property or of personal
property of the debtor at any time before the confirmation of a plan but the court,
on the request of any party to such contract or lease, may order the trustee to
determine within a specified period of time whether to assume or reject such
contract or lease.
(3) The trustee shall timely perform all the obligations of the debtor, except those
specified in section 365(b)(2), arising from and after the order for relief under any
unexpired lease of nonresidential real property, until such lease is assumed or
rejected, notwithstanding section 503(b)(1) of this title. The court may extend, for
cause, the time for performance of any such obligation that arises within 60 days
after the date of the order for relief, but the time for performance shall not be
extended beyond such 60-day period. This subsection shall not be deemed to affect
the trustee’s obligations under the provisions of subsection (b) or (f) of this section.
Acceptance of any such performance does not constitute waiver or relinquishment
of the lessor’s rights under such lease or under this title.
(4)
(A) Subject to subparagraph (B), an unexpired lease of nonresidential real
property under which the debtor is the lessee shall be deemed rejected, and
the trustee shall immediately surrender that nonresidential real property to
the lessor, if the trustee does not assume or reject the unexpired lease by the
earlier of—
(i) the date that is 120 days after the date of the order for relief; or
(ii) the date of the entry of an order confirming a plan.
(B)
(i) The court may extend the period determined under subparagraph
(A), prior to the expiration of the 120-day period, for 90 days on the
motion of the trustee or lessor for cause.
(ii) If the court grants an extension under clause (i), the court may grant
a subsequent extension only upon prior written consent of the lessor
in each instance.
(5) The trustee shall timely perform all of the obligations of the debtor, except those
specified in section 365(b)(2), first arising from or after 60 days after the order for
relief in a case under chapter 11 of this title under an unexpired lease of personal
property (other than personal property leased to an individual primarily for
personal, family, or household purposes), until such lease is assumed or rejected
notwithstanding section 503(b)(1) of this title, unless the court, after notice and a
hearing and based on the equities of the case, orders otherwise with respect to the
obligations or timely performance thereof. This subsection shall not be deemed to
affect the trustee’s obligations under the provisions of subsection (b) or (f).
Acceptance of any such performance does not constitute waiver or relinquishment
of the lessor’s rights under such lease or under this title.
. . .
Team R2
A
(g) Except as provided in subsections (h)(2) and (i)(2) of this section, the rejection of an
executory contract or unexpired lease of the debtor constitutes a breach of such contract or
lease—
(1) if such contract or lease has not been assumed under this section or under a plan
confirmed under chapter 9, 11, 12, or 13 of this title, immediately before the date
of the filing of the petition; or
(2) if such contract or lease has been assumed under this section or under a plan
confirmed under chapter 9, 11, 12, or 13 of this title—
(A) if before such rejection the case has not been converted under section 1112,
1208, or 1307 of this title, at the time of such rejection; or
(B) if before such rejection the case has been converted under section 1112,
1208, or 1307 of this title—
(i) immediately before the date of such conversion, if such contract or
lease was assumed before such conversion; or
(ii) at the time of such rejection, if such contract or lease was assumed
after such conversion.
(h)
(1)
(A) If the trustee rejects an unexpired lease of real property under which the
debtor is the lessor and—
(i) if the rejection by the trustee amounts to such a breach as would
entitle the lessee to treat such lease as terminated by virtue of its
terms, applicable nonbankruptcy law, or any agreement made by the
lessee, then the lessee under such lease may treat such lease as
terminated by the rejection; or
(ii) if the term of such lease has commenced, the lessee may retain its
rights under such lease (including rights such as those relating to the
amount and timing of payment of rent and other amounts payable
by the lessee and any right of use, possession, quiet enjoyment,
subletting, assignment, or hypothecation) that are in or appurtenant
to the real property for the balance of the term of such lease and for
any renewal or extension of such rights to the extent that such rights
are enforceable under applicable nonbankruptcy law.
(B) If the lessee retains its rights under subparagraph (A)(ii), the lessee may
offset against the rent reserved under such lease for the balance of the term
after the date of the rejection of such lease and for the term of any renewal
or extension of such lease, the value of any damage caused by the
nonperformance after the date of such rejection, of any obligation of the
debtor under such lease, but the lessee shall not have any other right against
the estate or the debtor on account of any damage occurring after such date
caused by such nonperformance.
(C) The rejection of a lease of real property in a shopping center with respect to
which the lessee elects to retain its rights under subparagraph (A)(ii) does
Team R2
A
not affect the enforceability under applicable nonbankruptcy law of any
provision in the lease pertaining to radius, location, use, exclusivity, or
tenant mix or balance.
(D) In this paragraph, “lessee” includes any successor, assign, or mortgagee
permitted under the terms of such lease.
(2)
(A) If the trustee rejects a timeshare interest under a timeshare plan under which
the debtor is the timeshare interest seller and—
(i) if the rejection amounts to such a breach as would entitle the
timeshare interest purchaser to treat the timeshare plan as terminated
under its terms, applicable nonbankruptcy law, or any agreement
made by timeshare interest purchaser, the timeshare interest
purchaser under the timeshare plan may treat the timeshare plan as
terminated by such rejection; or
(ii) if the term of such timeshare interest has commenced, then the
timeshare interest purchaser may retain its rights in such timeshare
interest for the balance of such term and for any term of renewal or
extension of such timeshare interest to the extent that such rights are
enforceable under applicable nonbankruptcy law.
(B) If the timeshare interest purchaser retains its rights under subparagraph (A),
such timeshare interest purchaser may offset against the moneys due for
such timeshare interest for the balance of the term after the date of the
rejection of such timeshare interest, and the term of any renewal or
extension of such timeshare interest, the value of any damage caused by the
nonperformance after the date of such rejection, of any obligation of the
debtor under such timeshare plan, but the timeshare interest purchaser shall
not have any right against the estate or the debtor on account of any damage
occurring after such date caused by such nonperformance.
. . .
(n)
(1) If the trustee rejects an executory contract under which the debtor is a licensor of a
right to intellectual property, the licensee under such contract may elect—
(A) to treat such contract as terminated by such rejection if such rejection by the
trustee amounts to such a breach as would entitle the licensee to treat such
contract as terminated by virtue of its own terms, applicable nonbankruptcy
law, or an agreement made by the licensee with another entity; or
(B) to retain its rights (including a right to enforce any exclusivity provision of
such contract, but excluding any other right under applicable nonbankruptcy
law to specific performance of such contract) under such contract and under
any agreement supplementary to such contract, to such intellectual property
(including any embodiment of such intellectual property to the extent
protected by applicable nonbankruptcy law), as such rights existed
immediately before the case commenced, for—
Team R2
A
(i) the duration of such contract; and
(ii) any period for which such contract may be extended by the licensee
as of right under applicable nonbankruptcy law.
(2) If the licensee elects to retain its rights, as described in paragraph (1)(B) of this
subsection, under such contract—
(A) the trustee shall allow the licensee to exercise such rights;
(B) the licensee shall make all royalty payments due under such contract for the
duration of such contract and for any period described in paragraph (1)(B)
of this subsection for which the licensee extends such contract; and
(C) the licensee shall be deemed to waive—
(i) any right of setoff it may have with respect to such contract under
this title or applicable nonbankruptcy law; and
(ii) any claim allowable under section 503(b) of this title arising from
the performance of such contract.
(3) If the licensee elects to retain its rights, as described in paragraph (1)(B) of this
subsection, then on the written request of the licensee the trustee shall—
(A) to the extent provided in such contract, or any agreement supplementary to
such contract, provide to the licensee any intellectual property (including
such embodiment) held by the trustee; and
(B) not interfere with the rights of the licensee as provided in such contract, or
any agreement supplementary to such contract, to such intellectual property
(including such embodiment) including any right to obtain such intellectual
property (or such embodiment) from another entity.
(4) Unless and until the trustee rejects such contract, on the written request of the
licensee the trustee shall—
(A) to the extent provided in such contract or any agreement supplementary to
such contract—
(i) perform such contract; or
(ii) provide to the licensee such intellectual property (including any
embodiment of such intellectual property to the extent protected by
applicable nonbankruptcy law) held by the trustee; and
(B) not interfere with the rights of the licensee as provided in such contract, or
any agreement supplementary to such contract, to such intellectual property
(including such embodiment), including any right to obtain such intellectual
property (or such embodiment) from another entity.
. . . .
§ 507. Priorities
(a) The following expenses and claims have priority in the following order:
. . .
Team R2
A
(2) Second, administrative expenses allowed under section 503(b) of this title,
unsecured claims of any Federal reserve bank related to loans made through
programs or facilities authorized under section 13(3) of the Federal Reserve Act
(12 U.S.C. 343),[1] and any fees and charges assessed against the estate under
chapter 123 of title 28.
. . . .
§ 541. Property of the Estate
(a) The commencement of a case under section 301, 302, or 303 of this title creates an estate.
Such estate is comprised of all the following property, wherever located and by whomever
held:
(1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable
interests of the debtor in property as of the commencement of the case.
(2) All interests of the debtor and the debtor’s spouse in community property as of the
commencement of the case that is—
(A) under the sole, equal, or joint management and control of the debtor; or
(B) liable for an allowable claim against the debtor, or for both an allowable
claim against the debtor and an allowable claim against the debtor’s spouse,
to the extent that such interest is so liable.
(3) Any interest in property that the trustee recovers under section 329(b), 363(n), 543,
550, 553, or 723 of this title.
(4) Any interest in property preserved for the benefit of or ordered transferred to the
estate under section 510(c) or 551 of this title.
(5) Any interest in property that would have been property of the estate if such interest
had been an interest of the debtor on the date of the filing of the petition, and that
the debtor acquires or becomes entitled to acquire within 180 days after such date—
(A) by bequest, devise, or inheritance;
(B) as a result of a property settlement agreement with the debtor’s spouse, or
of an interlocutory or final divorce decree; or
(C) as a beneficiary of a life insurance policy or of a death benefit plan.
(6) Proceeds, product, offspring, rents, or profits of or from property of the estate,
except such as are earnings from services performed by an individual debtor after
the commencement of the case.
(7) Any interest in property that the estate acquires after the commencement of the
case.
(b) Property of the estate does not include—
(1) any power that the debtor may exercise solely for the benefit of an entity other than
the debtor;
. . . .
§ 726. Distribution of Property of the Estate
(a) Except as provided in section 510 of this title, property of the estate shall be distributed—
Team R2
A
(1) first, in payment of claims of the kind specified in, and in the order specified in,
section 507 of this title, proof of which is timely filed under section 501 of this title
or tardily filed on or before the earlier of—
(A) the date that is 10 days after the mailing to creditors of the summary of the
trustee’s final report; or
(B) the date on which the trustee commences final distribution under this
section;
. . . .
§ 1107. Rights, Powers, and Duties of Debtor in Possession
(a) Subject to any limitations on a trustee serving in a case under this chapter, and to such
limitations or conditions as the court prescribes, a debtor in possession shall have all the
rights, other than the right to compensation under section 330 of this title, and powers, and
shall perform all the functions and duties, except the duties specified in sections 1106(a)(2),
(3), and (4) of this title, of a trustee serving in a case under this chapter.
. . . .
§ 1112. Conversion or Dismissal
(a) The debtor may convert a case under this chapter to a case under chapter 7 of this title
unless—
. . .
(b)
(1) Except as provided in paragraph (2) and subsection (c), on request of a party in
interest, and after notice and a hearing, the court shall convert a case under this
chapter to a case under chapter 7 or dismiss a case under this chapter, whichever is
in the best interests of creditors and the estate, for cause unless the court determines
that the appointment under section 1104(a) of a trustee or an examiner is in the best
interests of creditors and the estate.
. . . .
§ 1123. Contents of Plan
(a) Notwithstanding any otherwise applicable nonbankruptcy law, a plan shall—
. . .
(5) provide adequate means for the plan’s implementation, such as—
(A) retention by the debtor of all or any part of the property of the estate;
Team R2
A
(B) transfer of all or any part of the property of the estate to one or more entities,
whether organized before or after the confirmation of such plan;
(C) merger or consolidation of the debtor with one or more persons;
(D) sale of all or any part of the property of the estate, either subject to or free
of any lien, or the distribution of all or any part of the property of the estate
among those having an interest in such property of the estate;
(E) satisfaction or modification of any lien;
(F) cancellation or modification of any indenture or similar instrument;
(G) curing or waiving of any default;
(H) extension of a maturity date or a change in an interest rate or other term of
outstanding securities;
(I) amendment of the debtor’s charter; or
(J) issuance of securities of the debtor, or of any entity referred to in
subparagraph (B) or (C) of this paragraph, for cash, for property, for existing
securities, or in exchange for claims or interests, or for any other appropriate
purpose;
. . .
(b) Subject to subsection (a) of this section, a plan may—
. . .
(4) provide for the sale of all or substantially all of the property of the estate, and the
distribution of the proceeds of such sale among holders of claims or interests;
. . . .
§ 1129. Confirmation of Plan
(a) The court shall confirm a plan only if all of the following requirements are met:
. . .
(b)
. . .
(2) For the purpose of this subsection, the condition that a plan be fair and equitable
with respect to a class includes the following requirements:
(A) With respect to a class of secured claims, the plan provides—
(i)
(I) that the holders of such claims retain the liens securing such
claims, whether the property subject to such liens is retained
by the debtor or transferred to another entity, to the extent of
the allowed amount of such claims; and
Team R2
A
(II) that each holder of a claim of such class receive on account
of such claim deferred cash payments totaling at least the
allowed amount of such claim, of a value, as of the effective
date of the plan, of at least the value of such holder’s interest
in the estate’s interest in such property;
(ii) for the sale, subject to section 363(k) of this title, of any property
that is subject to the liens securing such claims, free and clear of
such liens, with such liens to attach to the proceeds of such sale, and
the treatment of such liens on proceeds under clause (i) or (iii) of
this subparagraph; or
(iii) for the realization by such holders of the indubitable equivalent of
such claims.
(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.
(C) With respect to a class of interests—
(i) the plan provides that each holder of an interest of such class receive
or retain on account of such interest property of a value, as of the
effective date of the plan, equal to the greatest of the allowed amount
of any fixed liquidation preference to which such holder is entitled,
any fixed redemption price to which such holder is entitled, or the
value of such interest; or
(ii) the holder of any interest that is junior to the interests of such class
will not receive or retain under the plan on account of such junior
interest any property.
. . . .
§ 1141. Effect of Confirmation
(a) Except as provided in subsections (d)(2) and (d)(3) of this section, the provisions of a
confirmed plan bind the debtor, any entity issuing securities under the plan, any entity
acquiring property under the plan, and any creditor, equity security holder, or general
partner in the debtor, whether or not the claim or interest of such creditor, equity security
holder, or general partner is impaired under the plan and whether or not such creditor,
equity security holder, or general partner has accepted the plan.
. . .
Team R2
A
(d)
. . .
(3) The confirmation of a plan does not discharge a debtor if—
(A) the plan provides for the liquidation of all or substantially all of the property
of the estate;
(B) the debtor does not engage in business after consummation of the plan; and
(C) the debtor would be denied a discharge under section 727(a) of this title if
the case were a case under chapter 7 of this title.
. . . .
Team R2
B
APPENDIX B: SELECTED FEDERAL RULES OF BANKRUPTCY PROCEDURE.
Rule 6004. Use, Sale, or Lease of Property
(a) Notice of Proposed Use, Sale, or Lease of Property. Notice of a proposed use, sale, or lease
of property, other than cash collateral, not in the ordinary course of business shall be given
pursuant to Rule 2002(a)(2), (c)(1), (i), and (k) and, if applicable, in accordance with
§363(b)(2) of the Code.
(b) Objection to Proposal. Except as provided in subdivisions (c) and (d) of this rule, an
objection to a proposed use, sale, or lease of property shall be filed and served not less than
seven days before the date set for the proposed action or within the time fixed by the court.
An objection to the proposed use, sale, or lease of property is governed by Rule 9014.
(c) Sale Free and Clear of Liens and Other Interests. A motion for authority to sell property
free and clear of liens or other interests shall be made in accordance with Rule 9014 and
shall be served on the parties who have liens or other interests in the property to be sold.
The notice required by subdivision (a) of this rule shall include the date of the hearing on
the motion and the time within which objections may be filed and served on the debtor in
possession or trustee.
. . . .
Rule 6006. Assumption, Rejection or Assignment of an Executory Contract or Unexpired
Lease
(a) Proceeding To Assume, Reject, or Assign. A proceeding to assume, reject, or assign an
executory contract or unexpired lease, other than as part of a plan, is governed by Rule
9014.
(b) Proceeding To Require Trustee To Act. A proceeding by a party to an executory contract
or unexpired lease in a chapter 9 municipality case, chapter 11 reorganization case, chapter
12 family farmer's debt adjustment case, or chapter 13 individual's debt adjustment case,
to require the trustee, debtor in possession, or debtor to determine whether to assume or
reject the contract or lease is governed by Rule 9014.
(c) Notice. Notice of a motion made pursuant to subdivision (a) or (b) of this rule shall be
given to the other party to the contract or lease, to other parties in interest as the court may
direct, and, except in a chapter 9 municipality case, to the United States trustee.
. . . .
Team R2
B
Rule 9013. Motions: Form and Service
A request for an order, except when an application is authorized by these rules, shall be by written
motion, unless made during a hearing. The motion shall state with particularity the grounds
therefor, and shall set forth the relief or order sought. Every written motion, other than one which
may be considered ex parte, shall be served by the moving party within the time determined under
Rule 9006(d). The moving party shall serve the motion on:
(a) the trustee or debtor in possession and on those entities specified by these rules; or
(b) the entities the court directs if these rules do not require service or specify the
entities to be served.
Rule 9014. Contested Matters
(a) Motion. In a contested matter not otherwise governed by these rules, relief shall be
requested by motion, and reasonable notice and opportunity for hearing shall be afforded
the party against whom relief is sought. No response is required under this rule unless the
court directs otherwise.
(b) Service. The motion shall be served in the manner provided for service of a summons and
complaint by Rule 7004 and within the time determined under Rule 9006(d). Any written
response to the motion shall be served within the time determined under Rule 9006(d). Any
paper served after the motion shall be served in the manner provided by Rule 5(b) F. R.
Civ. P.
(c) Application of Part VII Rules. Except as otherwise provided in this rule, and unless the
court directs otherwise, the following rules shall apply: 7009, 7017, 7021, 7025, 7026,
7028–7037, 7041, 7042, 7052, 7054–7056, 7064, 7069, and 7071. The following
subdivisions of Fed. R. Civ. P. 26, as incorporated by Rule 7026, shall not apply in a
contested matter unless the court directs otherwise: 26(a)(1) (mandatory disclosure),
26(a)(2) (disclosures regarding expert testimony) and 26(a)(3) (additional pre-trial
disclosure), and 26(f) (mandatory meeting before scheduling conference/discovery plan).
An entity that desires to perpetuate testimony may proceed in the same manner as provided
in Rule 7027 for the taking of a deposition before an adversary proceeding. The court may
at any stage in a particular matter direct that one or more of the other rules in Part VII shall
apply. The court shall give the parties notice of any order issued under this paragraph to
afford them a reasonable opportunity to comply with the procedures prescribed by the
order.
(d) Testimony of Witnesses. Testimony of witnesses with respect to disputed material factual
issues shall be taken in the same manner as testimony in an adversary proceeding.
(e) Attendance of Witnesses. The court shall provide procedures that enable parties to ascertain
at a reasonable time before any scheduled hearing whether the hearing will be an
evidentiary hearing at which witnesses may testify.
Team R2
B
Rule 9019. Compromise and Arbitration
(a) Compromise. On motion by the trustee and after notice and a hearing, the court may
approve a compromise or settlement. Notice shall be given to creditors, the United States
trustee, the debtor, and indenture trustees as provided in Rule 2002 and to any other entity
as the court may direct.
(b) Authority To Compromise or Settle Controversies Within Classes. After a hearing on such
notice as the court may direct, the court may fix a class or classes of controversies and
authorize the trustee to compromise or settle controversies within such class or classes
without further hearing or notice.
(c) Arbitration. On stipulation of the parties to any controversy affecting the estate the court
may authorize the matter to be submitted to final and binding arbitration.
Team R2
C
APPENDIX C: SELECTED BANKRUPTCY ACT PROVISIONS.
§ 110. Title to Property
. . .
(b) Within sixty days after the adjudication, the trustee shall assume or reject any executory
contract, including unexpired leases of real property: Provided, however, That the court
may for cause shown extend or reduce such period of time. Any such contract or lease not
assumed or rejected within such time, whether or not a trustee has been appointed or has
qualified, shall be deemed to be rejected. A trustee shall file, within sixty days after
adjudication, a statement under oath showing which, if any, of the contracts of the bankrupt
are executory in whole or in part, including unexpired leases of real property, and which,
if any, have been rejected by the trustee: Provided, however, That the court may for cause
shown extend or reduce such period of time. Unless a lease of real property shall expressly
otherwise provide, a rejection of such lease or of any covenant therein by the trustee of the
lessor shall not deprive the lessee of his estate. A general covenant or condition in a lease
that it shall not be assigned shall not be construed to prevent the trustee from assuming the
same at his election and subsequently assigning the same; but an express covenant that an
assignment by operation of law or the bankruptcy of a specified party thereto or of either
party shall terminate the lease or give the other party an election to terminate the same shall
be enforceable. A trustee who elects to assume a contract or lease of the bankrupt and who
subsequently, with the approval of the court and upon such terms and conditions as the
court may fix after hearing upon notice to the other party to the contract or lease, assigns
such contract or lease to a third person, shall not be liable for breaches occurring after such
assignment.
. . . .
