Philip Lively
EDITH H. JONES, Circuit Judge:
The denial of confirmation of an individual Chapter 11 debtor‘s reorganization plan was certified for appeal from the bankruptcy court pursuant to
Debtor Philip Lively‘s Chapter 13 case was converted to Chapter 11 after a creditor filed a claim that caused his scheduled debts to exceed the debt ceiling for Chapter 13 cases. Proceeding in Chapter 11, Lively proposed a reorganization plan that, inter alia, allowed him to retain all of his property, including the net value of a mortgage and net lease income from nine railroad tank cars, while paying unsecured creditors a small dividend that exceeded the liquidation value of his assets. No competing plans were filed; no objections to confirmation were filed by any creditor. Although the unsecured claims class voted overwhelmingly in dollar amount to approve the plan, the majority of that class voted by number of claims to reject it.
At the confirmation hearing, the court was thus required to determine whether the absolute priority rule applies, preventing confirmation unless the dissenting, impaired unsecured creditor class was “crammed down.” The court was obliged independently to determine whether the reorganization plan complies with applicable
DISCUSSION
We review de novo this issue of statutory interpretation. United States v. Kay, 359 F.3d 738, 742 (5th Cir. 2004). The absolute priority rule provides that a Chapter 11 reorganization plan is “fair and equitable” with respect to a dissenting class of unsecured claims, if
(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.
In a case in which the debtor is an individual, property of the estate includes, in addition to the property specified in [11 U.S.C. §] 541—
(1) all property of the kind specified in section 541 that the debtor acquires after the commencement of the case . . . ; and
(2) earnings from services performed by the debtor after the commencement of the case . . . .
Most of the cases that have interpreted BAPCPA‘s modification of the absolute priority rule have found the amendatory language ambiguous and have gone on to examine unenlightening legislative history and extrinsic interpretive factors to arrive at either a “narrow” or “broad” interpretation. The “narrow” interpretation holds that the absolute priority rule was amended so that individual debtors could exclude from its reach only their post-petition earnings and post-petition acquisitions of property, i.e., only property that was not already included in the Chapter 11 estate
To answer Lively‘s question, we use standard tools of statutory interpretation, which focus on the language of the statute taken in the context of the Bankruptcy Code of which it is a part. RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 132 S. Ct. 2065, 2070-71 (2012). So doing, we are inclined to agree with the bankruptcy court in this case that the “narrow” interpretation is unambiguous and correct, and the exception to the absolute priority rule plainly covers only the individual debtor‘s post-petition earnings and
post-petition acquired property. But even if the statutory language is ambiguous, then the “narrow view” must prevail, because the opposite interpretation leads to a repeal by implication of the absolute priority rule for individual debtors. In re Maharaj, 681 F.3d at 571.
A plain reading of
When the debtor‘s post-petition property and earnings were added to Chapter 11, however, Congress also had to modify the absolute priority rule so that a debtor would not be saddled with committing all post-petition property to satisfy creditors’ claims. See In re Kamell, 451 B.R. 505, 511 (Bankr. C.D. Cal. 2011) (“the property included in the estate under § 1115 includes all post-petition earnings, not limited by deduction for monthly expenses [as in Chapter 13] . . . [s]o, if the ‘absolute priority rule’ persisted after BAPCPA, it would have prevented the debtor from keeping any of his post-petition earnings as the price for cram down; thus enters the necessary amelioration in § 1129(b)(2)(B)(ii) . . . . But this is as far as one needs to go to make sense of the new statutory scheme.“) This most natural reading of the amendments renders no
The case law finding ambiguity rests on the terms “included in” and “under,” two words not normally the subject of such parsing. Reading the phrase in
But if ambiguity exists, the consequence of the “broad view” is that the “except” clause abrogates the absolute priority rule for individual debtors. This is a startling, and most indirect, way for Congress to have effected partial implicit repeal of the very provision that the section amended. As a matter of standard statutory construction, this result is unacceptable. Repeals by implication are disfavored and will not be presumed unless the legislature‘s intent is “clear and manifest.” Nat‘l Ass‘n of Home Builders v. Defenders of Wildlife, 551 U.S. 644, 662, 127 S. Ct. 2518, 2532 (2007). The Court has also explained that “we will not read the Bankruptcy Code to erode past bankruptcy practice absent a clear indication that Congress intended such a departure.” Hamilton v. Lanning, ___ U.S. ___, 130 S. Ct. 2464, 2473 (2010) (quotation omitted). The absolute priority rule, in particular, has been a cornerstone of equitable distribution for Chapter 11 creditors for over a century. We must presume Congress was well aware of that rule and, in the absence of a clearer directive, modified
For these reasons, the bankruptcy court‘s judgment is AFFIRMED.