In re Lucar-Elli
517 B.R. 42
Bankr. D. Conn.2014Background
- Lucarellis (individual debtors) and LEAS (corporate debtor) filed related Chapter 11 cases seeking joint administration and a single plan; plan proposed eight classes, preserving owners’ LEAS equity and impairing unsecureds
- Three Class 8 unsecured creditors rejected the plan; one, Sweet Delights, objected on absolute priority grounds
- Issue concerns whether BAPCPA modified or eliminated the absolute priority rule in individual Chapter 11 cases
- Court analyzes §1129(b)(2)(B)(ii) and §1115, noting ambiguity and various views (broad vs narrow) across courts
- Court adopts the narrow view due to statutory ambiguity and presumption against implied repeal, while acknowledging practical effects of the narrow view
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether BAPCPA eliminates absolute priority in individual Chapter 11 | Sweet Delights argues priority rule is not eliminated | Lucarellis/LEAS contend BAPCPA modifies but does not eliminate | Adopts narrow view; absolute priority remains intact |
| Meaning of §1129(b)(2)(B)(ii) and §1115 being ambiguous | Sweet Delights relies on broad interpretation to permit retention | Debtors rely on narrow interpretation limiting to §1115 post-petition property | Statutes deemed ambiguous; court resolves via canons of interpretation |
| Whether canons and legislative history support one interpretation | Sweet Delights emphasizes implied repeal concerns | Court should avoid implied repeal due to lack of clear intent | Presumption against implied repeal controls; narrow view adopted |
| Whether §1129(a)(15) and 'new value' exception affect confirmation | New value could allow confirmation despite priority issue | Not addressed until compliance with §1129(a)(15) and evidence of new value is adequate | Remand planned; issues to be addressed in separate order; not decided here |
Key Cases Cited
- Norwest Bank Worthington v. Ahlers, 485 F.2d 197 (U.S. 1988) (absolute priority rule applied to individuals; equity requires full payment to unsecureds)
- In re Maharaj, 681 F.3d 558 (4th Cir. 2012) (statutory language ambiguity; narrow vs broad interpretations)
- In re Stephens, 704 F.3d 1279 (10th Cir. 2013) (narrow view favored in circuit decisions)
- In re Lively, 717 F.3d 406 (5th Cir. 2013) (narrow view favored; circuit-level consensus growing)
- Ice House America, LLC v. Cardin, 751 F.3d 734 (6th Cir. 2014) (discusses practical impact of narrow view; ‘double whammy’ critique)
- In re Friedman, 466 B.R. 471 (9th Cir. BAP 2012) (broad view of §1129(b)(2)(B)(ii) and §1115; BAP aligns with broad interpretation)