RadLAX Gateway Hotel, LLC v. Amalgamated Bank: Examining the Importance of Credit Bidding at Chapter 11 Asset Sales

When times are tough, financially distressed businesses face a myriad of options in dealing with unpaid creditors. While some negotiate directly with lenders to facilitate new deals outside of court, others take advantage of protections found in the Bankruptcy Code (the "Code"). Chapter 11 provides business debtors with a favorable avenue to reorganize their operations or to sell their assets at auction. As the number of nationwide Chapter 11 filings remains significantly higher than pre- recession numbers, the prevalence of asset sales continues to increase due to the relatively generous financial return provided by the Bankruptcy Code's asset sale provisions. Chapter 11 debtors have recently begun to propose asset sale plans under § 1129(b)(2)(A)(iii) in an effort to strip away creditors' option to credit bid at the auction. A fully formed split among the Third, Fifth, and Seventh Circuits recently went up to the Supreme Court to determine whether a Chapter 11 debtor may pursue an asset sale plan under § 1129(b)(2)(A)(iii) without allowing the secured creditor to credit bid. The Seventh Circuit's opinion in River Road Hotel Partners, LLC v. Amalgamated Bank respected secured creditors' vital right to credit bid at Chapter 11 asset sales. In a short opinion authored by Justice Antonin Scalia, the Supreme Court affirmed. Although both courts correctly ruled on the statutory interpretation grounds of § 1129(b)(2)(A), each failed to adequately address congressional intent underlying the statute and missed the overarching policy implications of the decision.10 This Note tackles the important issues giving rise to the recently resolved circuit split and examines the benefits of requiring Chapter 11 reorganization plans to retain lenders' right to credit bid when selling assets free and clear of liens.