Philip Lively
717 F.3d 406
5th Cir.2013Background
- Debtor Philip Lively's case began as Chapter 13 and was converted to Chapter 11 due to debt exceeding Chapter 13 limits.
- Lively proposed a plan enabling him to retain valuable pre-petition assets and post-petition earnings, while paying unsecured creditors a small dividend.
- No competing plans or creditor objections were filed; unsecured class voted by dollar amount to approve, but by number of claims to reject.
- Bankruptcy court held the absolute priority rule applies and denied confirmation, certifying the issue for appeal as a matter of first impression.
- Court acknowledged circuit split and proceeded to interpret the interaction of the absolute priority rule with BAPCPA amendments, §1115, and §541.
- Issue framed: whether the §1129(b)(2)(B)(ii) exception for individuals abrogates the absolute priority rule.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §1129(b)(2)(B)(ii) exempts individuals from the absolute priority rule | Lively contends the exception exempts him entirely. | Lively's reading is rejected; the exception covers only post-petition earnings and property. | Narrow interpretation; exception does not repeal the rule for individuals. |
| How to interpret 'included in' the debtor's estate under §1115 when paired with §541 | Ambiguity could support broad reading that overrides §541. | Textually coordinated with §541; narrow reading is preferred to avoid implied repeal. | Plain reading supports narrow view; broad view would amount to implicit repeal. |
| Relation between amendments and statutory interpretation standard | Amendments coordinated with Chapter 13; should change the rule broadly. | Amendments refine, not reverse, the absolute priority rule. | Court adopts narrow interpretation consistent with statutory purpose. |
Key Cases Cited
- In re Maharaj, 681 F.3d 558 (4th Cir. 2012) (addresses interaction of §1115 with absolute priority rule)
- In re Stephens, 445 B.R. 816 (Bankr. S.D. Tex. 2011) (early bankruptcy court interpretation of BAPCPA amendments)
- RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 132 S. Ct. 2065 (2012) (statutory interpretation framework for Bankruptcy Code)
- In re Williams, 850 F.2d 250 (5th Cir. 1988) (absolute priority rule basics)
- In re Kamell, 451 B.R. 505 (Bankr. C.D. Cal. 2011) (post-petition earnings vs. expenses in absolute priority context)
- In re Seafort, 669 F.3d 662 (6th Cir. 2012) (interpretation of related statutory provisions)