No. 17-412

In The

SupremeCourtoftheUnitedStates

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 PETITIONER

Team Number P.51 Counsel for Petitioner

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QUESTIONS PRESENTED

1. Whether a bankruptcy court may approve a sale of real property “free and clear” of a

leasehold interest in such property held by an objecting lessee pursuant to section 363(f)

of the Bankruptcy code notwithstanding the protection that exists for lessees in section

365(h) of the Bankruptcy Code?

2. Whether a bankruptcy court may approve a contested “gift” settlement involving a

payment by a section 363 purchaser in connection with the acquisition of the debtor’s

assets when the settlement proceeds are not distributed in accordance with the

Bankruptcy Code’s priority scheme?

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TABLE OF CONTENTS

QUESTIONS PRESENTED..................................................................................................................i

TABLE OF CONTENTS.....................................................................................................................ii

TABLE OF AUTHORITIES..............................................................................................................iiiSTATEMENT OF JURISDICTION................................................................................................vi

STATUTORY PROVISIONS............................................................................................................viSTATEMENT OF THE CASE............................................................................................................1

SUMMARY OF THE ARGUMENT..................................................................................................5

ARGUMENT...........................................................................................................................................7I. A Complete Examination of the Bankruptcy Code Reveals That Section 363 Sales are Subject to Lessees’ Rights Under Section 365(h). .................................................................. 7

A. There is a Conflict Between Free and Clear Sales Under Section 363(f) and Protections Afforded to Lessees in Bankruptcy Under Section 365(h). .................................................... 7B. Application of Canons of Construction Support the Conclusion that Section 365(h) Trumps A Debtor’s Right to Sell Assets Free and Clear of a Leasehold Interest Under Section 363(f) ........................................................................................................................ 12C. A Section 363(f) sale is the functional equivalent of a rejection. ................................. 14

II. The Opinion Below Errs Because It Allows Debtors to Circumvent Bankruptcy’s Priority Scheme Established by Congress ............................................................................ 17

A. Settlements must comply with Bankruptcy’s Established Priority Scheme ................. 17B. The Committee Settlement’s Proceeds Are Property of the Estate ............................... 21C. Bankruptcy Courts Should not Use Their Equitable Powers to Approve Deviations of the Priority Scheme enacted by Congress ............................................................................. 23

CONCLUSION.....................................................................................................................................26

APPENDIX A...........................................................................................................................................IAPPENDIX B..........................................................................................................................................II

APPENDIX C........................................................................................................................................III

APPENDIX D........................................................................................................................................IVAPPENDIX E..........................................................................................................................................X

APPENDIX F.........................................................................................................................................XI

APPENDIX G......................................................................................................................................XIIAPPENDIX H..................................................................................................................................XVIII

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APPENDIX I.........................................................................................................................................XX

APPENDIX J...................................................................................................................................XXIIIAPPENDIX K..................................................................................................................................XXIV

APPENDIX L...................................................................................................................................XXVIAPPENDIX M..................................................................................................................................XXIX

TABLE OF AUTHORITIES

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U.S. SUPREME COURT CASES. Jevic, 137 S. Ct. 973, 986 (2017). ............................................................................................... 19

.” Norwest Bank Worthington Ahlers, 485 U.S. 197 (1988). ........................................................ 25 Law v. Siegel, 134 S. Ct. 1188, 1196 (2014). ............................................................................... 24

Morales v. Trans. World Airlines, Inc., 504 U.S. 374 (1992). ...................................................... 13 Protective Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc v. Anderson, 390 U.S. 414

(1968) ........................................................................................................................................ 18 RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. 639 (2012). ................................. 7

U.S. COURT OF APPEALS CASESICL Holding Co., Inc., 802 F.3d 547 (3d Cir. 2015). ................................................................... 23

In re Iridium Operating LLC, 478 F.3d 452 (2d Cir 2007). ......................................................... 21 In re Pacific Far East Line, Inc., 644 F.2d 1290 (9th Cir. 1981) ................................................. 12

Matter of Spanish Peaks Holdings II, LLC, 872 F.3d 892 (9th Cir. 2017) ................................... 11 Precision Indus., Inc. v. Qualitech Steel SBQ, LLC 327 F3d 537 (7th Cir. 2003) ....................... 10

United States v. AWECO, Inc. (In re AWECO, Inc.), 725 F.2d 293 (5th Cir. 1984). .................. 19 BANKRUPTCY COURT CASESIn re Churchill Props. III, Ltd. P’ship., 197 B.R. 283 (Bankr. N.D. Ill. 1996). ............................. 7 In re Dewey & LeBoeuf LLP, 478 B.R. 627 (Bankr. S.D.N.Y. 2012). ......................................... 18

In re Fryar, 570 B.R. 602 (Bankr. E.D. Tenn. 2017). .................................................................. 20 In re Haskell L.P., 321 B.R. 1 (Bankr. D. Mass. 2005). ............................................................... 10

In re Lee Rd. Partners, Ltd., 155 B.R. 55, 66 (Bankr. E.D.N.Y. 1993). ........................................ 9 In re Taylor, 198 B.R. 142 (Bankr. D.S.C. 1996). .......................................................................... 8

STATUTES & RULES11 U.S.C. § 1129(a)(9) (2012). ..................................................................................................... 18

11 U.S.C. § 349 (2012). ................................................................................................................ 20 11 U.S.C. § 361 (2012). .................................................................................................................. 9

11 U.S.C. § 363(b) (2012). ........................................................................................................... 13 11 U.S.C. § 363(e) (2012). ............................................................................................................ 10

11 U.S.C. § 365 (2012) ................................................................................................................... 7 11 U.S.C. § 365(a) (2012) ............................................................................................................... 8

11 U.S.C. § 365(h) (2012). ............................................................................................................. 8 11 U.S.C. § 365(h)(1) (2012). ......................................................................................................... 8

11 U.S.C. § 507 (2012). ................................................................................................................ 17

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11 U.S.C. § 541(a)(1) (2012). ....................................................................................................... 21 11 U.S.C. §363(c) (2012 ............................................................................................................... 13

11 U.S.C. §363(l) (2012). ............................................................................................................. 14 F. Bankr. R. P. 9019(a) (2018) ...................................................................................................... 18

SECONDARY SOURCES.” Thomas C. Homburger et. al., Conflict Resolved: Bankruptcy Code § 365(h) and the

Contradictory Case Requiring its Amendment, 29 Real Prop.Prob. & Tr. J. 869, 887-88 (1995). ......................................................................................................................................... 9

2 Norton Bankr.L. & Prac.2d § 41:10 (2007). .............................................................................. 19 3-363 Collier on Bankruptcy P 363.LH (16th 2017). ................................................................... 14

Black’s Law Dictionary 1418 (10th ed. 2014). ............................................................................. 22 H.R. Rep. No. 103-835 (1994). ..................................................................................................... 17

Melissa B. Jacoby & Edward J. Janger, Ice Cube Bonds: Allocating the Price of Process in Chapter 11 Bankruptcy, 123 Yale L.J. 862, 906 (2014). .......................................................... 24

Michael St. Patrick Baxter, Section 363 Sales Free and Clear of Interest: Why the Seventh Circuit Erred in Precision Industries v. Qualitech Steel, 59 Bus. L. 475, 491 (2004). ............ 11

See H. R. Rep. No. 95-595, 95th Cong., 1st Sess. 349 (1977); S. Rep. No. 95-989, 95th Cong., 2d Sess. 60 (1978), U.S. Code Cong. & Admin.News 1978, pp. 5787, 5846, 6306. ...................... 9

OPINIONS BELOW

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The bankruptcy court approved the Committee Settlement and the sale to 4th Street in a

bench opinion. The Court held that Section 363(f) trumped whatever rights Highway may have

under Section 365(h) of the Bankruptcy Code. R. at 8-9. Regarding the Committee settlement,

the court concluded that the absolute priority rule was not implicated. R. at 9. The court found

that the settlement was in the best interest of all parties in that the $2 million in settlement funds

would allow the unsecured creditors trust to pursue potentially very valuable claims against

Skyline. R. at 9. Highway appealed to the district court, and the court affirmed the ruling of the

bankruptcy court. This appeal followed. R. at 9.

STATEMENT OF JURISDICTION

The formal statement of jurisdiction is waived pursuant to Competition Rule VII.

STATUTORY PROVISIONS

The relevant statutory provisions involved in this case are listed below and are

reproduced in Appendices A through M.

11 U.S.C. § 105(a) (2012).

11 U.S.C. § 349 (2012).

11 U.S.C. § 361 (2012).

11 U.S.C. § 363 (2012).

11 U.S.C § 365(a) (2012).

11 U.S.C § 365(h) (2012).

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11 U.S.C. § 507 (2012).

11 U.S.C. § 541(a) (2012).

11 U.S.C. § 1106 (2012).

11 U.S.C. § 1107(a) (2012).

11 U.S.C. § 1129(a)(9) (2012).

11 U.S.C. § 1129(b) (2012).

28 U.S.C. § 2075 (2012).

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STATEMENT OF THE CASE

High Rocks, Inc. (“High Rocks,” or the “Debtor”) is a developer of an unfinished but

nearly completed casino, resort and amphitheater located outside of the city of Rainier in the

State of Moot. R. at 2, 3. High Rocks borrowed $800 million as a secured loan from North

Country Bank (“North Country”) to develop the project. R. at 4. Prior to the commencement of

construction, High Rocks entered into a lease agreement with Highway 61, Inc., (“Highway”), a

group of local investors in the music industry. R. at 5. The lease had a term of thirty years and it

provided that upon the completion of the amphitheater, Highway would manage, market, and

operate the music venue for the duration of the lease. R. at 5. High Rocks, as the lessor, would

receive as rent $400,000 per year plus a portion of the ticket and concession sales. R. at 5.

Skyline Construction, Inc. (“Skyline”) was selected as the project’s general contractor

because it submitted the lowest bid by a sizeable margin. R. at 4. Despite starting construction in

May 2014, Skyline’s attempts to cut costs by using cheap construction materials created

significant problems and several delays. R. at 4. Due to Skyline’s mismanagement of the project,

in December of 2015, High Rocks terminated the contract with Skyline. R. at 4. At the time

Skyline’s contract was terminated, the hotel tower and the casino building required substantial

work. R. at 5. In the same manner, the amphitheater lacked seating as well as sound equipment

and specialized acoustic panels that would ensure world-class acoustics. R. at 5.

In January of 2016, High Rocks hired Shelter From the Storm Builders, Inc. (“Shelter”)

to replace Skyline as the general contractor. R. at 5. However, since Shelter did not have the

venue expertise to complete construction of the amphitheater, the parties agreed that High Rocks

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would find another contractor to complete that portion of the project. R. at 5. In February of

2016, frustrated by the project’s repeated delays, North Country sold its note 4th Street (“4th

Street”). R. at 5. 4th Street, an entity who owns and operates resort and entertainment properties,

acquired the note as part of a “loan to own” strategy. R. at 5. In June of 2016, 4th street

commenced a foreclosure action against High Rocks in June of 2016. R. at 5.

Trying to avoid the foreclosure, High Rocks filed a voluntary chapter 11 bankruptcy case

in the United States Bankruptcy Court for the District of Moot in July of 2016. R. at 5. During

the first hearings, High Rocks stated that it intended to open the casino and resort to the public in

a few months. R. at 6. Shortly after the petition date, Highway approached High Rocks and

offered to install the seats, the sound equipment and acoustic panels in the amphitheater. R. at 6.

After the bankruptcy court’s approval, High Rocks and Highway entered into a post-petition

contract in which Highway agreed to finish the amphitheater in exchange for a payment of $2

million dollars. R. at 6. Moreover, Highway cordially agreed to defer payment until the

development opened to the public. R. at 6.

Highway completed its performance under the post-petition contract in November 2016,

a short period of two months. R. at 6. Since the construction of the hotel and the casino remained

uncompleted, High Rocks, Highway and the Committee agreed that Highway was entitled to

priority in the distribution of assets and stipulated that Highway was entitled to an administrative

expense in the amount of $2 million under section 503(b)(1) of the Bankruptcy Code. R. at 6. No

party objected and the bankruptcy court allowed Highway’s administrative expense for its post-

petition services pursuant to a final order. R. at 6.

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Unfortunately, the development’s construction continued to experience significant delays.

In the meantime, High Rocks struggled to fund the reorganization plan and was faced with 4th

Street’s significant pressure to sell its assets. R. at 6. In December of 2016, High Rocks filed a

motion pursuant to section 363(f) of the Bankruptcy Code to sell all of its assets free and clear of

any interests, including Highway’s leasehold in the amphitheater. R. at 6. The sale motion

expressly demonstrated this intent and it expressly provided that the winning bidder could elect

to buy the property free and clear of Highway’s lease. R. at 7.

Before the auction sale, the Committee informally alleged lender liability claims against

4th Street and challenged the validity and extent of its claims. R. at 7. In addition, the Committee

also started investigating the reasonableness of claims against Skyline due to its mismanagement

of the construction project. R. at 7. The Skyline claims were assigned to a litigation trust as part

of an unrelated settlement for the sole benefit of the unsecured creditors. R. at 7. [mention that

the claims were valuable].

On January 11, 2017, at the auction sale, 4th Street successfully credit bid and informed

the parties that it was acquiring the development free and clear of Highway’s leasehold interest

since it intended to manage the amphitheater. R. at 7. Objections to the free and clear sale were

timely filed. R. at 7. The Committee argued that the sale was a veiled foreclosure and that would

leave the estate depleted the assets and unable to pursue its claims against Skyline. R. at 7. In

addition, it also objected noting that it informally alleged claims against 4th Street. R. at 7.

Highway also objected, and asserted that it had the right to remain in possession of the

amphitheater for the duration of its lease, notwithstanding the free and clear sale, because of

lessee’s specific protections pursuant to section 365(h) of the Bankruptcy Code. R. at 8. In

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addition, Highway sent High Rocks a letter in which it elected to retain its possessory rights

under section 365(h) and that a sale pursuant to section 363(f) was the equivalent of a rejection

of the lease. R. at 8.

Before the sale hearing, High Rocks, the Committee and 4th Street entered into a

settlement of the Committee’s objection (the “Committee Settlement”). The settlement

agreement provided the “gift” of $2 million from 4th Street to the unsecured creditors’ trust in

exchange of the Committee’s withdraw of objection to the sale and a release of all claims against

4th Street. R. at 8. At the sale hearing, Highway renewed its objection to the sale on the grounds

that its lease was being improperly terminated contrary to its rights expressly provided under

section 365(h) of the Code. R. at 8. Moreover, Highway also asserted a new objection: the

Committee Settlement could not be approved because its distribution scheme of settlement

proceeds violated the absolute priority rule, one of the most fundamental tenants of Bankruptcy

law. R. at 8. Highway rightfully asserted that the absolute priority rule required claims of higher

priority, such as its administrative expense, be paid in full before unsecured creditors’ claims

could be satisfied. R. at 8. The bankruptcy court approved both the Committee Settlement and

the sale in a bench opinion. It reasoned that section 363(f) trumped Highway’s rights under

section 365(h). R. at 8, 9. Relatedly, the bankruptcy court concluded that the Committee

Settlement did not implicate the absolute priority rule. Both the district court and the Court of

Appeals for the Thirteenth Circuit affirmed. R. at 9. The Petition followed.

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At the sale hearing, Highway renewed its objection to the sale on the grounds that its

leasehold interest in the amphitheater was improperly being terminated contrary to its rights

under section 365(h) of the Bankruptcy code. (R. at 8) Moreover, Highway asserted a new

objection; that the Committee settlement could not be approved because the $2 million dollars in

settlement proceeds were not being distributed in accordance with the absolute priority rule,

which required that claims of a higher priority receive payment in full. (R. at 8)

SUMMARY OF THE ARGUMENT

The courts below failed to recognize the application of basic principles of bankruptcy law

and statutory construction. This is why Highway is before the Supreme Court today: Highway

was denied basic protections that the Bankruptcy Code was design to afford creditors and

lessees.

The Bankruptcy Code is a comprehensive scheme, enacted by Congress to guide

bankruptcy courts in administering bankrupt estates in an equitable and fair manner. Hence,

when sections of the Bankruptcy Code present statutory conflicts, it is imperative to consider that

the Code cannot be “read in a vacuum.” One of such conflicts is presented here. While Section

363(f) allows a debtor to sell assets free and clear of any interests, Section 365(h) protects

lessees and allows them to remain in possession when a lessor-debtor rejects the lease. To

resolve this statutory conflict, cannons of construction dictate that specific provisions prevail

over general ones. Since Section 365(h) provides detailed and precise instructions pertaining to

rejection of leaseholds, the section trumps a debtor’s right to sell assets free and clear pursuant to

Section 363(f). Indeed, a free and clear sale constitutes a de facto rejection of a leasehold

interest. Therefore, a debtor-lessor may not accomplish a forceful eviction of a lessee by

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attempting to sell property pursuant to Section 363(f). High Rocks’ sale of the development was

the functional equivalent of a rejection of Highway’s lease and triggered the protections afforded

to lessees under Section 365(h). The courts below failed to recognize this protection.

In order to ensure a fair balance between the debtor’s fresh start and the right of third-

parties affected by bankruptcy, Congress embodied in the Code a priority scheme of payment

and afforded some classes of claims additional protections. This priority scheme – comprised of

Section 507 and the absolute priority rule - is one of the most fundamental principles in

bankruptcy law. It applies in Chapter 11 cases such as the case filed by the debtor, High Rocks,

Inc. In the same manner, in approving settlements, bankruptcy courts must ensure that they

comply with the priority scheme. The Committee Settlement contemplated in the case at bar

violates the priority scheme because it attempts to distribute property to junior creditors while

leaving unpaid Highway’s administrative expense, a claim that is entitled to higher priority under

the Bankruptcy priority scheme. Because of these reasons, the opinions of the courts below

should be reversed, and the case should be remanded so that Highway can enjoy the protections

it is entitled under the Bankruptcy Code.

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ARGUMENT

I. A Complete Examination of the Bankruptcy Code Reveals That Section 363 Sales are

Subject to Lessees’ Rights Under Section 365(h).

Congress enacted the Bankruptcy Code as a comprehensive scheme to guide bankruptcy

courts in granting debtors a fresh start. Therefore, when statutory sections conflict, it is

imperative to consider the interplay between such sections and congressional intent. While

Section 363(f) provides debtors with a right to sell property free and clear of interests, the section

is subject to the constraints of Section 365(h) when such interests involve unexpired leaseholds.

Here, Highway raises both the legal questions of whether a bankruptcy court may

approve a sale “free and clear” of a leasehold interest in such property held by an objecting

lessee pursuant to Section 363(f) notwithstanding the protection that exists for lessees in Section

365(h), and the legal question of whether a bankruptcy court may approve “gift” settlement

involving a payment by a Section 363 purchaser in connection with the acquisition of the

debtor’s assets when it does not comply with Bankruptcy Code’s priority scheme. Since the

review addresses issues of law, the review is de novo. Furthermore, conclusions of law made by

a bankruptcy court are also reviewed de novo. Mediofactoring v. McDermott (In re Connolly N.

Am., LLC), 802 F.3d 810, 814 (6th Cir. 2015).

A. There is a Conflict Between Free and Clear Sales Under Section 363(f) and

Protections Afforded to Lessees in Bankruptcy Under Section 365(h).

A sale of property free and clear under Section 363(f) is impermissible because Section

365(h) constitutes a limitation on a debtor’s right to sell property encumbered by an unexpired

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leasehold interest. This Court has held that the Bankruptcy Code is and should be interpreted as a

“comprehensive scheme.” RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. 639,

645 (2012). As such, when confronted with a conflict between two statutory provisions, courts

should not read statutes in isolation because the Code cannot be “read in a vacuum.” In re

Churchill Props. III, Ltd. P’ship., 197 B.R. 283, 288 (Bankr. N.D. Ill. 1996).

In order to ensure a fair balance between a debtor’s fresh start and the rights of other

parties affected by bankruptcy, Congress enacted Section 365 of the Bankruptcy Code. See 11

U.S.C. § 365 (2012). That section provides that a trustee or debtor in possession with the choice

to either assume or reject any executory contract or unexpired lease subject to the court’s

approval. See 11 U.S.C. § 365(a) (2012). As Judge Waites explained, the provision bestows the

debtor with “statutory means and a time period to determine to shed itself of an unfavorable lease

or solidify a favorable lease . . . all for the benefit of a debtor's reorganization efforts.” In re

Taylor, 198 B.R. 142, 164 (Bankr. D.S.C. 1996). Congress provided special treatment to debtors

who are lessors in enacting Section 365(h). See 11 U.S.C. § 365(h) (2012). In case of rejection of

an unexpired lease by a debtor-lessor, the lessee can elect to remain in possession or treat the

rejection as a breach of the lease agreement. See 11 U.S.C. § 365(h)(1) (2012).

When a trustee or a debtor-lessor seeks to sell real property free and clear of a lessee’s

interest, Section 363(f) impairs the protections afforded to lessees under Section 365(h). When a

debtor-lessor petitions the court to sell property free and clear and also files a motion to reject an

unexpired lease, the debtor burdens the court with an irreconcilable task because allowing, “a

sale free and clear of that interest . . . would seem to be in direct contravention of the lessee

protections specifically afforded by § 365.” In re Taylor, 198 B.R. at 165. In enacting Section

365(h) of the Code, “Congress intended to prevent the divestiture of the lessee's estate prior to

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the expiration of the bargained-for term when the debtor-lessor rejects a lease.” Id. After the

1994 amendments to the Bankruptcy Code, such intent became even clearer, since the revisions

aimed the elimination of pro-lessor interpretations of Section 365(h) and also intended to

“increase uniformity of lessee postrejection rights by restricting bankruptcy courts' ability to

deviate from the congressional intent of the 1984 amendment.” Thomas C. Homburger et. al.,

Conflict Resolved: Bankruptcy Code § 365(h) and the Contradictory Case Requiring its

Amendment, 29 Real Prop.Prob. & Tr. J. 869, 887-88 (1995). By allowing a sale free and clear

of a lessee’s leasehold interest, courts sanction what Congress sought to prevent: “forcible

eviction of tenants in possession wherever possible.” In re Carlton Rest., Inc., 151 B.R. 353, 356

(Bankr. E.D. Pa. 1993).

A sale free and clear of a leasehold interest under Section 363 is the practical equivalent

of dispossessing a lessee. This is in direct contravention of the protections Congress sought to

afford lessees. See In re Taylor, 198 B.R. at 166 (Bankr. D. S.C. 1996). Case law developed

around the statutory interpretation of Section 365(h) has concluded that the statute’s purpose was

“to preserve a lessee's possessory interests in its leasehold while allowing a debtor-lessor to

escape the burden of providing continuing services to a tenant.” In re Lee Rd. Partners, Ltd., 155

B.R. 55, 66 (Bankr. E.D.N.Y. 1993). Such intent is further highlighted by the fact that even a

debtor-lessor’s rejection “does not terminate the lease so completely as to divest the lessee of his

estate in property.” Id. at 60 (citation omitted). Allowing a sale free and clear of the lease in fact

nullifies Section 365(h) protections, disregards congressional intent and misuses the bankruptcy

court’s authority to deprive the tenant of the estate for the term for which he bargained for. See

H. R. Rep. No. 95-595, 95th Cong., 1st Sess. 349 (1977); S. Rep. No. 95-989, 95th Cong., 2d

Sess. 60 (1978), U.S. Code Cong. & Admin.News 1978, pp. 5787, 5846, 6306.

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Only Section 365(h) affords the complete and necessary protections lessees require under

the Bankruptcy Code. The majority court below argues that despite Section 365(h)

inapplicability to free and clear sales, lessees are not without recourse because they can move the

court for adequate protection under Section 363(e). R. at 14. Adequate protection may result in

different remedies: cash payments, an additional or replacement lien or other relief that results in

the “realization by such entity of the indubitable equivalent of such entity’s interest in such

property” 11 U.S.C. § 361 (2012). Section 363(e) provides that upon a request of a party “that

has an interest in property . . . proposed to be used, sold, or leased, by the trustee, the court . . .

shall prohibit or condition such use, sale, or lease as is necessary to provide adequate protection

of such interest.” 11 U.S.C. § 363(e) (2012). As the majority concedes, however, “[a]dequate

protection” does not necessarily guarantee a lessee's continued possession of the property, but it

does demand, in the alternative, that the lessee be compensated for the value of its leasehold -

typically from the proceeds of the sale.” Precision Indus., Inc. v. Qualitech Steel SBQ, LLC 327

F3d 537, 548 (7th Cir. 2003) (citation omitted) (emphasis added). As stated above, Congress’

intent when it enacted Section 365(h) was to preserve a lessee’s possessory interest and not the

economic value of the lease. If, arguendo, Section 363(e) provides adequate protection to

lessees, it is unclear why Congress would fill the Code with null sections.

Adequate protection under Section 363(e) does not afford lessees with the level of

protection Congress sought to afford them. The argument that Section 363(e) may encompass the

protections of Section 365(h) overlooks many important considerations. Lessees have rights and

interests in property that demands a specific kind of protection. An important consideration

relates to the valuation of a lessee’s possessory interest. In re Haskell illustrates this point. In that

case, New England Baptist Hospital (“NEBH”) and Haskell entered into a 99-year lease

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agreement in which NEBH would not pay a fixed rent but would be responsible for operating

expenses and real estate taxes. In re Haskell L.P., 321 B.R. 1, 3-4 (Bankr. D. Mass. 2005).

Haskell, the debtor-lessor, filed for bankruptcy and petitioned the court to sell his property

pursuant to Section 363(f), free and clear of NEBH’s leasehold interest. Id. NEBH objected to

the sale and argued that Section 365(h) allowed it to remain in possession. Id. The court rejected

the debtor’s contention that the lessee would be protected because its leasehold interest would

attach to the sale proceeds, and explained that it would be difficult to quantify NEBH’s interest

because of the prolonged term of the lease. Id. at 9-10. The Haskell court denied the sale motion

and held that the lessee was entitled to remain in possession. Id. at 9-10.

In the same manner, the case at bar is analogous to Haskell. Here, before the

development’s construction, Highway and High Rocks entered into a 30-year lease agreement, a

substantial amount of time. R. at 5. The majority emphasizes that Highway has failed to petition

the court for adequate protection but fails to comment on how Highway’s leasehold interest

should be assessed. Even if the court is able to assess the economic value of the leasehold

interest, if the amphitheater is liquidated, such value does not necessarily represent the interest

from the perspective of the lessee. See Michael St. Patrick Baxter, Section 363 Sales Free and

Clear of Interest: Why the Seventh Circuit Erred in Precision Industries v. Qualitech Steel, 59

Bus. L. 475, 491 (2004). It is not surprising, therefore, that the majority was unable to support its

argument with case law that shows methods for assessing the value of a lessees’ leasehold

interest. Instead, adequate protection is a more appropriate remedy for secured creditors. See

Michael St. Patrick Baxter, Section 363 Sales Free and Clear of Interest: Why the Seventh

Circuit Erred in Precision Industries v. Qualitech Steel, 59 Bus. L. 475, 491-92 (2004). Indeed,

the lessee’s preference to remain in possession indicates a strong possibility that the lessee

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cannot be compensated monetarily for the leasehold interest. See Matter of Spanish Peaks

Holdings II, LLC, 872 F.3d 892, 899 (9th Cir. 2017) (declining to decide form of adequate

protection that could have been awarded). The majority’s reliance on Section 363(e) is

unpersuasive in light of the specific protections to which lessees are unequivocally entitled under

Section 365(h).

B. Application of Canons of Construction Support the Conclusion that Section 365(h)

Trumps A Debtor’s Right to Sell Assets Free and Clear of a Leasehold Interest

Under Section 363(f)

The premise that Section 365(h) trumps a debtor’s right to sell assets free and clear of a

leasehold interest is widely accepted by the majority of bankruptcy courts. As the Ninth Circuit

pointed out, “[t]he construction principle that specific provisions prevail over general gains a

foothold only when there is some kind of conflict between the general and specific statutory

provisions.” In re Pacific Far East Line, Inc., 644 F.2d 1290, 1293 (9th Cir. 1981) (citation

omitted). As stated by Judge DeGunther, difficulty arises when assessing claims that require the

application of both Section 365(h) and 363(f) “because each provision seems to provide an

exclusive right that when invoked would override the interest of the other.” In re Churchill

Properties III, Ltd. P’ship, 197 B.R. at 286 (emphasis added).

In Churchill, the debtor, who owned an apartment complex entered into a 19-year lease

agreement with C & H Enterprise. Id. at 285-86. After filing a Chapter 11 bankruptcy case, the

debtor sold the property pursuant to Section 363(f). Id. The lessee argued that it was entitled to

remain in possession under its lease agreement as provided by Section 365(h)(1)(A) and sought

to enforce the lease against the Bank, the debtor’s successor. Id. at 288. Judge DeGunther noted

the practical effect of the statutory conflict as follows:

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13

For instance, if the Court decided that the sale of Amber Manor under Section 363(f) divested C & H of its leasehold, regardless of the existence of Section 365, C & H would lose the benefit of a 19 year lease and Section 365 would be rendered meaningless. On the other hand, if the Court decided that C & H has the right to retain possession of its leasehold, the language in the Sale Order may be compromised. In that event the Bank might seek to have the sale set aside, thereby throwing the whole affair into chaos.

Id. at 286-87.

In re Taylor also demonstrates the statutory conflict between Sections 365(h) and 363(f).

In that case, Taylor, the debtor-lessor, sought to sell its nursing home facilities free and clear of

all interests to Delta Health Group. In re Taylor, 198 B.R. at 144. The lessee, Magnolia, asserted

that the debtor’s exclusive remedy as a lessor was under Section 365 of the Bankruptcy Code. Id.

at 145. The court denied the motion to sell pursuant to Section 363(f) and emphasized that

Section 365(h) sets forth “with great particularity . . . the rights and duties of the lessor and

lessee while § 363 does not.” Id. at 165.

In face of statutory interpretation conflict between Code sections, this Court has stated,

“it is commonplace of statutory construction that the specific governs the general.” Morales v.

Trans. World Airlines, Inc., 504 U.S. 374, 384 (1992). Unambiguously, Section 365(h) sets out a

specific and special protection to lessees in the event a debtor is also the lessor. See 11 U.S.C. §

365(h) (2012). The comprehensiveness and the particularity with which the section was drafted

demonstrate that Congress meant to safeguard innocent lessees’ rights from forcible evictions. It

further demonstrates that Congress has “deliberately targeted specific problems with specific

solutions.” RadLAX, 566 U.S. at 645 (quotations omitted).

In fact, when Section 363 is read in full, it becomes clear that it is, in fact, subject to the

provisions of Section 365. The majority contends that the lack of explicit cross-references in

neither §363(f) nor §365(h) is a settled suggestion that Section 365(h) does not subordinate

Section 363(f). This premise misinterprets the Code and reads it “in a vacuum”. In re Churchill,

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197 B.R. at 288. Section 363 allows two types of sales: sales outside the ordinary course of

business and sales in the ordinary course of business. See 11 U.S.C. §§ 363(b), 363(c) (2012).

Sales under Section 363(f) are a subcategory of sales in or outside the course of business and as

such, they are subject to the same limitations as sales referenced in Sections 363(b) and (c). A

careful review of the Bankruptcy Code reveals that both sales in and outside the course of

business are subject to limitations placed by Section 363(l). Section 363(l) provides that

“[s]ubject to the provisions of section 365, the trustee may use, sell, or lease property under

subsection (b) or (c) of this section . . . notwithstanding any provision in a contract, a lease, or

applicable law that is conditioned on the insolvency or financial condition of the debtor.” 11

U.S.C. §363(l) (2012) (emphasis added).

Finally, sales under Section 363 of the Bankruptcy Code, including free and clear sales

pursuant to Section 363(f), are expressly made subject to the provisions of Section 365 and in

case of sales that involve real property encumbered by unexpired leaseholds, Section 365(h).

[cite to Baxter’s argument here]. This becomes even clearer when legislative history is

considered. Congress amended the language of subsection (l) in 1984 by replacing “The trustee”

with “Subject to the provisions of section 365”. 3-363 Collier on Bankruptcy P 363.LH (16th

2017).

As the Seventh Circuit highlighted in Qualitech, “[i]t is generally presumed that

Congress acts intentionally and purposely when it includes particular language in one section of

a statute but omits it in another.” Qualitech, 327 F.3d at 537 (internal citation omitted). The

addition is undeniable evidence that Congress intended to place a limitation on a trustee’s ability

to sell property pursuant to section 363.

C. A Section 363(f) sale is the functional equivalent of a rejection.

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15

A sale of property encumbered by a leasehold pursuant Section 363(f) is the functional

equivalent of a rejection of the lease under Section 365. In essence, a sale pursuant to Section

363(f) allows the trustee or the debtor to divest the property of any interest and deliver to the

purchaser an unencumbered fee simple. While holding that Sections 363(f) and 365(h) did not

conflict, the Ninth Circuit recognized that “a sale of property free and clear of a lease may be an

effective rejection of the lease in some everyday sense.” Matter of Spanish Peaks Holding II,

LLC,872 F.3d at 899. The sale, therefore, effects a rejection because it divests the lessee of his

leasehold, and renders the protections of Section 365 meaningless. See In re Churchill, 197 B.R.

at 286-87 (stating that provisions are in conflict because when they must be applied together,

“each provision seems to provide an exclusive right that when invoked would override the

interest of the other”).

The majority opinion below mistakenly relies in Qualitech. In that case, the debtor,

Qualitech Steel entered into two related agreements with Precision Industry. Qualitech, 327 F.3d

at 540. One of the agreements provided that Precision would build a supply warehouse on

Qualitech’s campus. Id. The other agreement, a land lease, stipulated that Qualitech would lease

the property to Precision for a term of ten years. Id. In addition, it provided that in exchange for a

$1 rent per year, Precision would have exclusive possession of the warehouse and any other land

improvements. Id. Precision built the warehouse and less than a month after the lease was

executed, Qualitech filed a Chapter 11 case. Id. Subsequently, Qualitech sold substantially all of

its assets free and clear of interests to senior pre-petition lenders. Id. Although the sale was

concluded without the express rejection or assumption of the lease, Precision’s lease was later de

facto rejected. Id. at 541. The Seventh Circuit held that the sale under section 363(f) effectively

extinguished Precision’s leasehold interest. Id. at 548.

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16

In Qualitech, the Seventh Circuit drew a distinction between a “repudiation” of a lease

and a rejection. Regardless of the term employed to describe the event, the result is clear: an

effective eviction of the lessee. Precision was left without a remedy. Qualitech at 548. Ironically,

the court noted early in the opinion that Congress’s intent when it enacted Section 365(h)(1)(A)

was to prevent an eviction. The court reasoned that while a rejection triggers the protections

afforded lessees under Section 365(h), a mere “repudiation” of the lease does not. The court’s

reasoning is unpersuasive and as Justice Petty noted in his dissent, draws a “distinction without a

difference.” R. at 27. Indeed, in Qualitech, the debtor’s creativity enabled him to evict the lessee

with the court’s permission: Qualitech sold its property free and clear of Precision’s lease to its

pre-petition lenders, reorganized itself and under a new name “New Qualitech” and repurchased

the property free and clear from its pre-petition lenders. Id. at 537. Qualitech effectively evicted

the lessee by failing to expressly reject the lease and accomplished the result Congress sought to

prevent. The Seventh Circuit’s decision rendered the protections of Section 365(h) null and

sanctioned lessee’s eviction.

In enacting Section 365(h), Congress intended to preserve lessees’ possessory interest as

Judge Duberstein explained as follows:

In enacting § 365(h), Congress sought to codify a delicate balance between the rights of a debtor-lessor and the rights of its tenants, by preserving certain expectations of parties to real estate transactions. . . Specifically, Congress concluded that rejection of a lease by a debtor-lessor should not deprive a tenant of his estate for the term for which he bargained. . . Furthermore, courts construing § 365(h) have concluded that the statute was designed to preserve a lessee's possessory interests in its leasehold while allowing a debtor-lessor to escape the burden of providing continuing services to a tenant. . . In accordance with the Code's intent that a tenant not be deprived of his estate for the term for which he bargained. . . the lessee's leasehold estate cannot be diminished, changed or modified due to bankruptcy's intervention. In short, § 365(h) seeks to prevent forcible evictions whenever possible.

In re Lee Road Partners, Ltd., 155 B.R. 55, 60-61 (Bankr. E.D.N.Y. 1993).

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17

II. The Opinion Below Errs Because It Allows Debtors to Circumvent Bankruptcy’s

Priority Scheme Established by Congress

A. Settlements must comply with Bankruptcy’s Established Priority Scheme

The Bankruptcy Code sets out a detailed scheme for distributing a debtor’s assets upon

the filing of a bankruptcy case. Such scheme was designed to prevent a creditors’ race to the

courthouse when the debtor’s assets are insufficient to pay all of its creditors. Besides giving

debtors a “fresh start,” the Bankruptcy Code also aimed “to protect creditors in general by

preventing an insolvent debtor from selectively paying off the claims of certain favored creditors

at the expense of others.” H.R. Rep. No. 103-835, at 33 (1994). House Report. Therefore, one of

the primary objectives of the bankruptcy system is “to enforce a distribution of the debtor’s

assets in an orderly manner in which the claims of all creditors are considered fairly, in

accordance with established principles rather than on the basis of the inside influence or

economic leverage of a particular creditor.” H.R. Rep. No. 103-835, at 33 (1994) (emphasis

added). The Code’s priority scheme is a unique mechanism that ensures that bankruptcy

proceedings will comply with Congress’ intent to ensure equality and fairness in the

administration of bankrupt estates. See Jevic, 137 S. Ct. at 948 (explaining that the priority

system is considered fundamental to the Code’s operation).

The Bankruptcy Code provides for two sets of priority rules: the § 507 priorities, and the

“absolute priority rule.” Section 507 establishes that claims must follow a specific order of

priority payment that applies in Chapters 7, 11, 12 and 13. 11 U.S.C. § 507 (2012). According to

Section 507 priorities, administrative expenses are given secondary priority, only superseded in

priority by domestic support obligations. 11 U.S.C. § 507 (2012). In the context of a Chapter 11,

Congress believed that such priorities are so critical that a plan cannot be confirmed unless the

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18

holders of priority claims are paid in full and in cash absent an agreement that states otherwise.

11 U.S.C. § 1129(a)(9) (2012). Therefore, the absolute priority rule requires that a plan, or a

settlement proposed as part of a plan, to be “fair and equitable,” which means, “senior interests

are entitled to full priority over junior ones.” Protective Comm. for Indep. Stockholders of TMT

Trailer Ferry, Inc v. Anderson, 390 U.S. 414, 441 (1968); see 11 U.S.C. § 1129(b) (2012). Here,

Highway has performed services under its post-petition contract with High Rocks and it is

undisputed that it is entitled to an administrative expense in the amount of $2 million dollars. R.

at 6. Likewise, Highway did not agree to waive its priority of payment but instead duly objected

at the sale hearing that its priority was being “skipped” by the Committee Settlement’s payment

structure. R. at 8. Since there are no domestic support claims at issue in this case, Highway

enjoys the highest priority allowed pursuant Section 507 and the absolute priority rule requires

Highway’s administrative expense to be paid in full before the unsecured creditors’ claims can

be satisfied.

Compromises and settlements are encouraged in Chapter 11 cases since they facilitate

resolution of disputes and avoid costly litigation. See In re Dewey & LeBoeuf LLP, 478 B.R. 627

(Bankr. S.D.N.Y. 2012). After notice and a hearing, and upon motion, bankruptcy courts have

authority to approve settlements. F. Bankr. R. P. 9019(a) . As a rule of procedure, rule 9019

cannot be relied on to deviate from the priority scheme explained above. See 28 U.S.C. § 2075

(bankruptcy rules of procedure “shall not abridge, enlarge, or modify any of substantive right”).

Rather, bankruptcy courts have relied on this Court’s decision in TMT Trailer Ferry to decide

whether settlements are “fair and equitable.” See Protective Comm. for Indep. Stockholders of

TMT Trailer Ferry, Inc v. Anderson, 390 U.S. 414, 424 (1968); 2 Norton Bankr.L. & Prac.2d §

41:10 (2007).

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When a settlement is proposed outside of a plan, the “fair and equitable standard is still

proper.” United States v. AWECO, Inc. (In re AWECO, Inc.), 725 F.2d 293, 298 (5th Cir. 1984).

In AWECO, the Fifth Circuit rejected the appellee’s contention that the absolute priority rule

should not be applied in the period that precedes a reorganization plan. Id. at 298. Instead, the

court correctly noted that, “as soon as a debtor files a petition for relief, fair and equitable

settlement of creditors’ claims becomes a goal of the proceedings; [t]he goal does not suddenly

appear during the process of approving a plan of compromise.” Id. Here, as Judge Petty noted in

his dissent, it is undisputed that the Committee’s settlement with 4th Street does not comply with

the priority scheme. R. at 25 (Petty, J. dissenting). While the Committee Settlement proposes to

satisfy the unsecured creditors with the allocation of $ 2 million to their litigation trust,

Highway’s administrative expense will remain unpaid.

The majority decision below interpreted Jevic to allow settlements that departs from the

Code’s priority scheme when the following elements are present: (i) the distribution of

settlement proceeds is not final, and (ii) the distribution serves a significant Code-related

objective. R. at 16. This “rare” exception is not applicable to this case. According to this Court,

significant Code-related objectives involve: (i) preserving the debtor as a going concern; (ii)

making disfavored creditors better off; (iii) promoting the possibility of a confirmable plan; (iv)

helping to restore the status quo ante; (v) helping to protect reliance interests such as the “critical

vendor” orders. Jevic, 137 S. Ct. 973, 986 (2017). Distributions that violate the Code’s priority

scheme and do not satisfy one of the above-cited factors cannot be approved. See In re Fryar,

570 B.R. 602, 609-10 (Bankr. E.D. Tenn. 2017). The non-consensual priority-skipping

settlement in the present case fails to satisfy any of the abovementioned factors.

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First, the Committee Settlement does not preserve High Rocks as a going concern; rather,

High Rocks is being liquidated. R. at 26. The Committee Settlement is part of a greater scheme

to sell all of High Rock’s assets free and clear of any interests. In fact, as objected by the

Committee before the settlement, the free and clear sale of High Rock’s assets would constitute a

veiled foreclosure that would leave Debtor’s estate completely depleted and unable to pursue

claims against Skyline. R. at 7. Second, the Committee Settlement does not make Highway better

off. Rather, Highway is effectively being penalized for acting in good faith and relying on

bankruptcy courts’ equity powers. Highway relied on the Bankruptcy’s system when it entered

into a post-petition contract with High Rocks to finish the amphitheater. R. at 6. Hence,

Highway’s administrative expense must not remain unpaid.

Third, the settlement does not promote the possibility of a confirmable plan. On the

contrary, the settlement and the sale pursuant to section 363 ended any meaningful prospect of a

confirmable plan. As Judge Petty pointed out, “the Debtor and the Committee have admitted that

confirmation of a plan is cost-prohibitive under the circumstances.” R. at 26 (Petty, J.,

dissenting). Fourth, the settlement does not restore the statute quo ante because it is not certain if

all parties, including Highway as a disfavored creditor will be in the same position in which it

was before the commencement of the case. See 11 U.S.C. § 349 (2012). In fact, it is uncertain if

the case will be subject of a dismissal. And fifth, the Committee Settlement does not protect any

reliance interest but instead encourages creditors to collude in an effort to make arrangements

that circumvent the priority scheme. Here, Highway is being punished for its reliance on

Bankruptcy’s core principles and for its disposition to assist High Rocks in expediting the

amphitheater’s completion. As Judge Rucker pointed out in In re Fryar, “this case more closely

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resembles the proposed transactions that lower courts have refused to allow on the ground that

they circumvent the Code's procedural safeguards.” 570 B.R. at 610 (citations omitted).

The majority opinion below also argues that the Committee Settlement may be approved despite

its lack of compliance with the Code’s priority scheme because it does not involve a final

distribution in the context of a structured dismissal. The majority opinion below elevates form

over substance and ignores the practical consequences of athe Committee Settlement. Upon

approval of the settlement, there is nothing left to be distributed to Highway. As Justice Petty

pointed out, “the Committee Settlement effectively ends the case (at least with respect to

Highway) without any regard for the Bankruptcy Code’s priority scheme.” R. at 27 (Petty, J.,

dissenting). In addition, Respondent’s analogy to Iridium is misplaced. While in Iridium a

confirmed plan was attainable and even expected, in the present case, there is no prospect of a

meaningful of reorganization plan. In re Iridium Operating LLC, 478 F.3d 452, 466-67 (2d Cir

2007).

B. The Committee Settlement’s Proceeds Are Property of the Estate

The filing of a Chapter 11 bankruptcy case creates an estate. See Cyzewski v. Jevic

Holding Corp., 137 S. Ct. 973 (2017); 11 U.S.C. § 541(a) (2018). Such estate includes “all legal

or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. §

541(a)(1) (2012). Hence, “[a] cause of action held by the debtor is property of the estate.” In re

Jevic Holding Corp., 787 F.3d 173, 188 (3d Cir. 2017) (citations omitted). Here, the Committee

informally alleged lender liability claims against 4th Street and it also challenged the validity of

its liens. R. at 7. As of the commencement of the Chapter 11 case, such unliquidated causes of

action became property of the estate.

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In Chapter 11 cases, the debtor-in-possession or the trustee, acting as a fiduciary that

manages the estate is encouraged to maximize it for the benefit of the creditors. See §§ 1106,

1107(a) (2018). With respect to unliquidated causes of action, the trustee can choose to settle or

litigate. Settlements are encouraged because they minimize costs and provide an efficient and

expedite resolution of issues between the parties. See In re Iridium Operating, LLC, 478 F.3d at

455 (stating that settlements are encouraged in Chapter 11 cases because they “help to clear a

path for the efficient administration of the bankrupt estate, including any eventual plan of

reorganization”) Protective Comm. for Indep. Stockholders of TMT Ferry, Inc. v. Anderson, 390

U.S. 414, 424 (1968) (“In administering reorganization proceeding in an economical and

practical manner it will often be wise to arrange the settlement of claims”). However, before

approving settlements bankruptcy courts must make independent judgments and scrutinize its

merits, evaluating its rewards in face of litigation. See Protective Comm. for Indep. Stockholders

of TMT Ferry, Inc. 390 U.S. at 424-25 (1968).

The settlement of unliquidated causes of action attaches a value to a settled claim. Hence,

when parties settle in bankruptcy, the amount paid in exchange for the settlement constitutes

proceeds from property of the estate. According to § 541(a)(6), “[p]roceeds . . . of or from

property of the estate” are part of the debtor’s estate. Relatedly, “proceeds” are defined as

“something received upon selling, exchanging, collecting, or otherwise disposing of collateral.”

Black’s Law Dictionary 1418 (10th ed. 2014).

Here, the Committee informally alleged lender liability claims against 4th Street and vehemently

objected to the debtor’s sale of assets before a settlement was reached. R. at 7. It is undisputed

that the settlement not only involved the withdraw of the Committee’s objection to the sale but

that it also contemplated the Committee’s release of liability of any and all claims against 4th

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Street. R. at 8. Both the liability releases and the objection’s withdraw served as consideration

and were exchanged for 4th Street’s payment of $2 million to the unsecured creditors’ litigation

trust. The $ 2 million dollars constituted in fact proceeds from the Committee Settlement because

they were exchanged for the release of liability by the estate. Proceeds, as well as any property

of the estate, whether tangible or intangible, must be distributed according to the Bankruptcy

Code’s priority scheme.

The majority mistakenly relies on ICL Holding Co., Inc., 802 F.3d 547 (3d Cir. 2015) and

argues that the $ 2 million distributed to the unsecured creditor’s trust do not constitute property

of the estate. R. at 18, 19. In ICL Holding Co., the Third Circuit reasoned that the settlement

monies were “not given in exchanged for any estate property” and consequently, its

characterization of estate property was not appropriate. Id. at 555. This case is factually

distinguishable. Here, 4th Street’s $ 2 million contribution was given in exchange of estate

property, namely, releases of liability and the Committee’s withdraw objection. Therefore, while

in ICL Holding there was no exchange of estate property, in this case, lender liability claims

which belonged to the debtor’s estate were exchanged for $2 million dollars.

C. Bankruptcy Courts Should not Use Their Equitable Powers to Approve Deviations

of the Priority Scheme enacted by Congress

The Bankruptcy code’s priority scheme - the absolute priority rule and the statutory

priority codified in section 507 - is applied in bankruptcy cases to assess plan confirmations and

settlements. Unless a creditor waives a priority entitlement, there is no basis to circumvent the

Code’s priority scheme when making a final distribution. The priority rules codified in section

507, including the recognized priority awarded to Highway’s administrative expense, reflect

well-thought-off legislative judgments. The priority scheme reflects Congress’ view that some

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24

classes of claimants need protection or otherwise they are in a disadvantageous position in the

bankruptcy bargaining process. It is not a surprise that, “[c]ode-authorized priorities among

unsecured claims are rooted both in the exigencies of bankruptcy, and in other public policy

considerations.” Melissa B. Jacoby & Edward J. Janger, Ice Cube Bonds: Allocating the Price of

Process in Chapter 11 Bankruptcy, 123 Yale L.J. 862, 906 (2014).

In Law v. Siegel, this Court promptly emphasized the importance of honoring Congress’

intent when it stated, “[t]he Code's meticulous - not to say mind-numbingly detailed

enumeration. . . confirms that courts are not authorized to create additional exceptions.” 134 S.

Ct. 1188, 1196 (2014). Moreover, in In re Mammoth Mart, Inc., the First Circuit reasoned, “[t]o

give priority to a claimant not clearly entitled thereto is not only inconsistent with the policy of

equality of distribution; it dilutes the value of the priority for those creditors Congress intended

to prefer.” 536 F.2d 950, 953 (C.A.1 1976). Here, it is undisputed that Highway is entitled to an

administrative expense in the amount of $ 2 million for post-petition services rendered to High

Rocks. R. at 6. Indeed, no parties objected to Highway’s administrative expense and the

bankruptcy court allowed it pursuant to a final order. R. at 6. Considering that Congress chose to

grant administrative expenses a higher payment priority under section 507, such primacy should

not be disrupted by non-consensual priority-skipping settlements such as the Committee

Settlement in the present case. In discussing the Code’s legislative history, this Court recently

noted as follows:

The importance of the priority system leads us to expect more than simple statutory silence if, and when, Congress were to intend a major departure. Put somewhat more directly, we would expect to see some affirmative indication of intent if Congress actually meant to make structured dismissals a backdoor means to achieve the exact kind of nonconsensual priority-violating final distributions that the Code prohibits in Chapter 7 liquidations and Chapter 11 plans.

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Jevic, 137 S. Ct. at 984 (citation omitted). It is not the province of courts to authorize

arrangements that disregard clear Congressionally-established priorities. As Justice Breyer

correctly pointed out, “We cannot alter the balance struck by the statute, not even in rare cases.”

Jevic, 137 S. Ct. at 987 (citation omitted).

Finally, bankruptcy courts possess general equitable authority pursuant to section 105(a)

of the Code. See 11 U.S.C. §105(a) (2018). While the language of section 105(a) is broad, this

Court has advised, “whatever equitable powers remain in the bankruptcy courts must and can

only be exercised within the confines of the Bankruptcy Code.” Norwest Bank Worthington

Ahlers, 485 U.S. 197, 207, 108 S. Ct. 963, 99 L.E.2d 169 (1988). While the majority concedes

that the Committee Settlement is less than ideal, it attempts to justify it on the basis that it is the

best option for the Debtor and its creditors. R. at 17. Such argument does not authorize a

departure from the most important procedural safeguards embodied in the Bankruptcy code. It is

inequitable to allow a non-consensual priority-skipping settlement to render the Code’s priority

rules null.

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CONCLUSION

The priority scheme is the most fundamental procedural safeguard incorporated by

Congress into the Bankruptcy Code. It ensures an orderly distribution of a debtor’s assets and

prevents a debtor to favor selective creditors at the expense of others. It is the hallmark of

bankruptcy law that ensures fairness and equality. Settlements negotiated in the context of

Chapter 11 cases must comply with the Code’s priority scheme. An approval of the Committee

Settlement will invite for creative arrangements that do not comply with the priority rules and

alter the bargaining power of creditors, disrupting the equitable process Congress attempted to

ensure when enacted the Code. In addition, principles of statutory construction demands the

conclusion that specific trump over general provisions. Lessees are entitled to the protection

Congress intentionally sought to afford them. The judgment of the court of appeals should be

reversed.

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27

Team P. 51

I

APPENDIX A

11 U.S.C. § 105(a) (2012).

Power of Court.

(a) The court may issue any order, process, or judgment that is necessary or appropriate to carry

out the provisions of this title. No provision of this title providing for the raising of an issue by a

party in interest shall be construed to preclude the court from, sua sponte, taking any action or

making any determination necessary or appropriate to enforce or implement court orders or rules,

or to prevent an abuse of process.

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II

APPENDIX B 11 U.S.C. § 349 (2012).

Effect of dismissal.

(a) Unless the court, for cause, orders otherwise, the dismissal of a case under this title does not

bar the discharge, in a later case under this title, of debts that were dischargeable in the case

dismissed; nor does the dismissal of a case under this title prejudice the debtor with regard to the

filing of a subsequent petition under this title, except as provided in section 109(g) of this title.

(b) Unless the court, for cause, orders otherwise, a dismissal of a case other than under section

742 of this title--

(b)(1) reinstates--

(b)(1)(A) any proceeding or custodianship superseded under section 543 of this title;

(b)(1)(B) any transfer avoided under section 522, 544, 545, 547, 548, 549, or 724(a) of this title,

or preserved under section 510(c)(2), 522(i)(2), or 551 of this title; and

(b)(1)(C) any lien voided under section 506(d) of this title;

(b)(2) vacates any order, judgment, or transfer ordered, under section 522(i)(1), 542, 550, or 553

of this title; and

(b)(3) revests the property of the estate in the entity in which such property was vested

immediately before the commencement of the case under this title.

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III

APPENDIX C 11 U.S.C. § 361 (2012).

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--

(1) requiring the trustee to make a cash payment or periodic cash payments to such entity, to the

extent that the stay under section 362 of this title, use, sale, or lease under section 363 of this

title, or any grant of a lien under section 364 of this title results in a decrease in the value of such

entity's interest in such property;

(2) providing to such entity an additional or replacement lien to the extent that such stay, use,

sale, lease, or grant results in a decrease in the value of such entity's interest in such property; or

(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.

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IV

APPENDIX D 11 U.S.C. § 363 (2012).

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.

(b)(1) The trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary

course of business, property of the estate, except that if the debtor in connection with offering a

product or a service discloses to an individual a policy prohibiting the transfer of personally

identifiable information about individuals to persons that are not affiliated with the debtor and if

such policy is in effect on the date of the commencement of the case, then the trustee may not

sell or lease personally identifiable information to any person unless--

(b)(1)(A) such sale or such lease is consistent with such policy; or

(b)(1)(B) after appointment of a consumer privacy ombudsman in accordance with section 332,

and after notice and a hearing, the court approves such sale or such lease--

(b)(1)(B)(i) giving due consideration to the facts, circumstances, and conditions of such sale or

such lease; and

(b)(1)(B)(ii) finding that no showing was made that such sale or such lease would violate

applicable nonbankruptcy law.

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V

(b)(2) If notification is required under subsection (a) of section 7A of the Clayton Act in the case

of a transaction under this subsection, then--

(b)(2)(A) notwithstanding subsection (a) of such section, the notification required by such

subsection to be given by the debtor shall be given by the trustee; and

(b)(2)(B) notwithstanding subsection (b) of such section, the required waiting period shall end on

the 15th day after the date of the receipt, by the Federal Trade Commission and the Assistant

Attorney General in charge of the Antitrust Division of the Department of Justice, of the

notification required under such subsection (a), unless such waiting period is extended--

(b)(2)(B)(i) pursuant to subsection (e)(2) of such section, in the same manner as such subsection

(e)(2) applies to a cash tender offer;

(b)(2)(B)(ii) pursuant to subsection (g)(2) of such section; or

(b)(2)(B)(iii) by the court after notice and a hearing.

(c)(1) If the business of the debtor is authorized to be operated under section

721, 1108, 1203, 1204, or 1304 of this title and unless the court orders otherwise, the trustee may

enter into transactions, including the sale or lease of property of the estate, in the ordinary course

of business, without notice or a hearing, and may use property of the estate in the ordinary course

of business without notice or a hearing.

(c)(2) The trustee may not use, sell, or lease cash collateral under paragraph (1) of this subsection

unless--

(c)(2)(A) each entity that has an interest in such cash collateral consents; or

(c)(2)(B) the court, after notice and a hearing, authorizes such use, sale, or lease in accordance

with the provisions of this section.

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(c)(3) Any hearing under paragraph (2)(B) of this subsection may be a preliminary hearing or

may be consolidated with a hearing under subsection (e) of this section, but shall be scheduled in

accordance with the needs of the debtor. If the hearing under paragraph (2)(B) of this subsection

is a preliminary hearing, the court may authorize such use, sale, or lease only if there is a

reasonable likelihood that the trustee will prevail at the final hearing under subsection (e) of this

section. The court shall act promptly on any request for authorization under paragraph (2)(B) of

this subsection.

(c)(4) Except as provided in paragraph (2) of this subsection, the trustee shall segregate and

account for any cash collateral in the trustee's possession, custody, or control.

(d) The trustee may use, sell, or lease property under subsection (b) or (c) of this section--

(d)(1) in the case of a debtor that is a corporation or trust that is not a moneyed business,

commercial corporation, or trust, only in accordance with nonbankruptcy law applicable to the

transfer of property by a debtor that is such a corporation or trust; and

(d)(2) only to the extent not inconsistent with any relief granted under subsection (c), (d), (e),

or (f) of section 362.

(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--

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(f)(1) applicable nonbankruptcy law permits sale of such property free and clear of such interest;

(f)(2) such entity consents;

(f)(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;

(f)(4) such interest is in bona fide dispute; or

(f)(5) such entity could be compelled, in a legal or equitable proceeding, to accept a money

satisfaction of such interest.

(g) Notwithstanding subsection (f) of this section, the trustee may sell property under subsection

(b) or (c) of this section free and clear of any vested or contingent right in the nature of dower or

curtesy.

(h) Notwithstanding subsection (f) of this section, the trustee may sell both the estate's interest,

under subsection (b) or (c) of this section, and the interest of any co-owner in property in which

the debtor had, at the time of the commencement of the case, an undivided interest as a tenant in

common, joint tenant, or tenant by the entirety, only if--

(h)(1) partition in kind of such property among the estate and such co-owners is impracticable;

(h)(2) sale of the estate's undivided interest in such property would realize significantly less for

the estate than sale of such property free of the interests of such co-owners;

(h)(3) the benefit to the estate of a sale of such property free of the interests of co-owners

outweighs the detriment, if any, to such co-owners; and

(h)(4) such property is not used in the production, transmission, or distribution, for sale, of

electric energy or of natural or synthetic gas for heat, light, or power.

(h)(4)(i) Before the consummation of a sale of property to which subsection (g) or (h) of this

section applies, or of property of the estate that was community property of the debtor and the

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debtor's spouse immediately before the commencement of the case, the debtor's spouse, or a co-

owner of such property, as the case may be, may purchase such property at the price at which

such sale is to be consummated.

(j) After a sale of property to which subsection (g) or (h) of this section applies, the trustee shall

distribute to the debtor's spouse or the co-owners of such property, as the case may be, and to the

estate, the proceeds of such sale, less the costs and expenses, not including any compensation of

the trustee, of such sale, according to the interests of such spouse or co-owners, and of the estate.

(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.

(l) Subject to the provisions of section 365, the trustee may use, sell, or lease property under

subsection (b) or (c) of this section, or a plan under chapter 11, 12, or 13 of this title may provide

for the use, sale, or lease of property, notwithstanding any provision in a contract, a lease, or

applicable law that is conditioned on the insolvency or financial condition of the debtor, on the

commencement of a case under this title concerning the debtor, or on the appointment of or the

taking possession by a trustee in a case under this title or a custodian, and that effects, or gives an

option to effect, a forfeiture, modification, or termination of the debtor's interest in such

property.

(m) The reversal or modification on appeal of an authorization under subsection (b) or (c) of this

section of a sale or lease of property does not affect the validity of a sale or lease under such

authorization to an entity that purchased or leased such property in good faith, whether or not

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such entity knew of the pendency of the appeal, unless such authorization and such sale or lease

were stayed pending appeal.

(n) The trustee may avoid a sale under this section if the sale price was controlled by an

agreement among potential bidders at such sale, or may recover from a party to such agreement

any amount by which the value of the property sold exceeds the price at which such sale was

consummated, and may recover any costs, attorneys' fees, or expenses incurred in avoiding such

sale or recovering such amount. In addition to any recovery under the preceding sentence, the

court may grant judgment for punitive damages in favor of the estate and against any such party

that entered into such an agreement in willful disregard of this subsection.

(o) Notwithstanding subsection (f), if a person purchases any interest in a consumer credit

transaction that is subject to the Truth in Lending Act or any interest in a consumer credit

contract (as defined in section 433.1 of title 16 of the Code of Federal Regulations (January 1,

2004), as amended from time to time), and if such interest is purchased through a sale under this

section, then such person shall remain subject to all claims and defenses that are related to such

consumer credit transaction or such consumer credit contract, to the same extent as such person

would be subject to such claims and defenses of the consumer had such interest been purchased

at a sale not under this section.

(p) In any hearing under this section--

(p)(1) the trustee has the burden of proof on the issue of adequate protection; and

(p)(2) the entity asserting an interest in property has the burden of proof on the issue of the

validity, priority, or extent of such interest.

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APPENDIX E

11 U.S.C. § 365(a) (2012).

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.

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APPENDIX F 11 U.S.C. § 365(h) (2012).

Executory contracts and unexpired leases.

(h)(1)(A) If the trustee rejects an unexpired lease of real property under which the debtor is the

lessor and--

(h)(1)(A)(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

(h)(1)(A)(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.

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APPENDIX G 11 U.S.C. § 507 (2012).

Priorities.

(a) The following expenses and claims have priority in the following order:

(a)(1) First:

(a)(1)(A) Allowed unsecured claims for domestic support obligations that, as of the date of the

filing of the petition in a case under this title, are owed to or recoverable by a spouse, former

spouse, or child of the debtor, or such child's parent, legal guardian, or responsible relative,

without regard to whether the claim is filed by such person or is filed by a governmental unit on

behalf of such person, on the condition that funds received under this paragraph by a

governmental unit under this title after the date of the filing of the petition shall be applied and

distributed in accordance with applicable nonbankruptcy law.

(a)(1)(B) Subject to claims under subparagraph (A), allowed unsecured claims for domestic

support obligations that, as of the date of the filing of the petition, are assigned by a spouse,

former spouse, child of the debtor, or such child's parent, legal guardian, or responsible relative

to a governmental unit (unless such obligation is assigned voluntarily by the spouse, former

spouse, child, parent, legal guardian, or responsible relative of the child for the purpose of

collecting the debt) or are owed directly to or recoverable by a governmental unit under

applicable nonbankruptcy law, on the condition that funds received under this paragraph by a

governmental unit under this title after the date of the filing of the petition be applied and

distributed in accordance with applicable nonbankruptcy law.

(a)(1)(C) If a trustee is appointed or elected under section 701, 702, 703, 1104, 1202, or 1302,

the administrative expenses of the trustee allowed under paragraphs (1)(A), (2) and (6) of section

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503(b) shall be paid before payment of claims under subparagraphs (A) and (B), to the extent

that the trustee administers assets that are otherwise available for the payment of such claims.

(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), and any fees and

charges assessed against the estate under chapter 123 of title 28.

(a)(3) Third, unsecured claims allowed under section 502(f) of this title.

(a)(4) Fourth, allowed unsecured claims, but only to the extent of $12,8501 for each individual or

corporation, as the case may be, earned within 180 days before the date of the filing of the

petition or the date of the cessation of the debtor's business, whichever occurs first, for--

(a)(4)(A) wages, salaries, or commissions, including vacation, severance, and sick leave pay

earned by an individual; or

(a)(4)(B) sales commissions earned by an individual or by a corporation with only 1 employee,

acting as an independent contractor in the sale of goods or services for the debtor in the ordinary

course of the debtor's business if, and only if, during the 12 months preceding that date, at least

75 percent of the amount that the individual or corporation earned by acting as an independent

contractor in the sale of goods or services was earned from the debtor.

(a)(5) Fifth, allowed unsecured claims for contributions to an employee benefit plan--

(a)(5)(A) arising from services rendered within 180 days before the date of the filing of the

petition or the date of the cessation of the debtor's business, whichever occurs first; but only

(a)(5)(B) for each such plan, to the extent of--

(a)(5)(B)(i) the number of employees covered by each such plan multiplied by $12,8501; less

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(a)(5)(B)(ii) the aggregate amount paid to such employees under paragraph (4) of this

subsection, plus the aggregate amount paid by the estate on behalf of such employees to any

other employee benefit plan.

(a)(6) Sixth, allowed unsecured claims of persons--

(a)(6)(A) engaged in the production or raising of grain, as defined in section 557(b) of this title,

against a debtor who owns or operates a grain storage facility, as defined in section 557(b) of this

title, for grain or the proceeds of grain, or

(a)(6)(B) engaged as a United States fisherman against a debtor who has acquired fish or fish

produce from a fisherman through a sale or conversion, and who is engaged in operating a fish

produce storage or processing facility--

but only to the extent of $6,3251 for each such individual.

(a)(7) Seventh, allowed unsecured claims of individuals, to the extent of $2,8501 for each such

individual, arising from the deposit, before the commencement of the case, of money in

connection with the purchase, lease, or rental of property, or the purchase of services, for the

personal, family, or household use of such individuals, that were not delivered or provided.

(a)(8) Eighth, allowed unsecured claims of governmental units, only to the extent that such

claims are for--

(a)(8)(A) a tax on or measured by income or gross receipts for a taxable year ending on or before

the date of the filing of the petition--

(a)(8)(A)(i) for which a return, if required, is last due, including extensions, after three years

before the date of the filing of the petition;

(a)(8)(A)(ii) assessed within 240 days before the date of the filing of the petition, exclusive of--

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(a)(8)(A)(I) any time during which an offer in compromise with respect to that tax was pending

or in effect during that 240-day period, plus 30 days; and

(a)(8)(A)(II) any time during which a stay of proceedings against collections was in effect in a

prior case under this title during that 240-day period, plus 90 days; or

(a)(8)(A)(iii) other than a tax of a kind specified in section 523(a)(1)(B) or 523(a)(1)(C) of this

title, not assessed before, but assessable, under applicable law or by agreement, after, the

commencement of the case;

(a)(8)(B) a property tax incurred before the commencement of the case and last payable without

penalty after one year before the date of the filing of the petition;

(a)(8)(C) a tax required to be collected or withheld and for which the debtor is liable in whatever

capacity;

(a)(8)(D) an employment tax on a wage, salary, or commission of a kind specified in paragraph

(4) of this subsection earned from the debtor before the date of the filing of the petition, whether

or not actually paid before such date, for which a return is last due, under applicable law or under

any extension, after three years before the date of the filing of the petition;

(a)(8)E) an excise tax on--

(a)(8)(E)(i) a transaction occurring before the date of the filing of the petition for which a return,

if required, is last due, under applicable law or under any extension, after three years before the

date of the filing of the petition; or

(a)(8)(E)(ii) if a return is not required, a transaction occurring during the three years immediately

preceding the date of the filing of the petition;

(a)(8)(F) a customs duty arising out of the importation of merchandise--

(a)(8)(F)(i) entered for consumption within one year before the date of the filing of the petition;

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(a)(8)(F)(ii) covered by an entry liquidated or reliquidated within one year before the date of the

filing of the petition; or

(a)(8)(F)(iii) entered for consumption within four years before the date of the filing of the

petition but unliquidated on such date, if the Secretary of the Treasury certifies that failure to

liquidate such entry was due to an investigation pending on such date into assessment of

antidumping or countervailing duties or fraud, or if information needed for the proper

appraisement or classification of such merchandise was not available to the appropriate customs

officer before such date; or

(a)(8)(G) a penalty related to a claim of a kind specified in this paragraph and in compensation

for actual pecuniary loss.

An otherwise applicable time period specified in this paragraph shall be suspended for any

period during which a governmental unit is prohibited under applicable nonbankruptcy law from

collecting a tax as a result of a request by the debtor for a hearing and an appeal of any collection

action taken or proposed against the debtor, plus 90 days; plus any time during which the stay of

proceedings was in effect in a prior case under this title or during which collection was precluded

by the existence of 1 or more confirmed plans under this title, plus 90 days.

(a)(9) Ninth, allowed unsecured claims based upon any commitment by the debtor to a Federal

depository institutions regulatory agency (or predecessor to such agency) to maintain the capital

of an insured depository institution.

(a)(10) Tenth, allowed claims for death or personal injury resulting from the operation of a motor

vehicle or vessel if such operation was unlawful because the debtor was intoxicated from using

alcohol, a drug, or another substance.

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(a)(10)(b) If the trustee, under section 362, 363, or 364 of this title, provides adequate protection

of the interest of a holder of a claim secured by a lien on property of the debtor and if,

notwithstanding such protection, such creditor has a claim allowable under subsection (a)(2) of

this section arising from the stay of action against such property under section 362 of this title,

from the use, sale, or lease of such property under section 363 of this title, or from the granting

of a lien under section 364(d) of this title, then such creditor's claim under such subsection shall

have priority over every other claim allowable under such subsection.

(a)(10)(c) For the purpose of subsection (a) of this section, a claim of a governmental unit arising

from an erroneous refund or credit of a tax has the same priority as a claim for the tax to which

such refund or credit relates.

(a)(10)(d) An entity that is subrogated to the rights of a holder of a claim of a kind specified in

subsection (a)(1), (a)(4), (a)(5), (a)(6), (a)(7), (a)(8), or (a)(9) of this section is not subrogated to

the right of the holder of such claim to priority under such subsection.

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APPENDIX H 11 U.S.C. § 541(a) (2012).

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:

(a)(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.

(a)(2) All interests of the debtor and the debtor's spouse in community property as of the

commencement of the case that is--

(a)(2)(A) under the sole, equal, or joint management and control of the debtor; or

(a)(2)(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.

(a)(3) Any interest in property that the trustee recovers under section

329(b), 363(n), 543, 550, 553, or 723 of this title.

(a)(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.

(a)(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)(5)(A) by bequest, devise, or inheritance;

(a)(5)(B) as a result of a property settlement agreement with the debtor's spouse, or of an

interlocutory or final divorce decree; or

(a)(5)(C) as a beneficiary of a life insurance policy or of a death benefit plan.

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(a)(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.

(a)(7) Any interest in property that the estate acquires after the commencement of the case.

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APPENDIX I

11 U.S.C. § 1106 (2012). Duties of trustee and examiner. (a) A trustee shall--

(a)(1) perform the duties of the trustee, as specified in paragraphs (2), (5), (7), (8), (9), (10), (11),

and (12) of section 704(a);

(a)(2) if the debtor has not done so, file the list, schedule, and statement required under section

521(a)(1) of this title;

(a)(3) except to the extent that the court orders otherwise, investigate the acts, conduct, assets,

liabilities, and financial condition of the debtor, the operation of the debtor's business and the

desirability of the continuance of such business, and any other matter relevant to the case or to

the formulation of a plan;

(a)(4) as soon as practicable--

(a)(4)(A) file a statement of any investigation conducted under paragraph (3) of this subsection,

including any fact ascertained pertaining to fraud, dishonesty, incompetence, misconduct,

mismanagement, or irregularity in the management of the affairs of the debtor, or to a cause of

action available to the estate; and

(a)(4)(B) transmit a copy or a summary of any such statement to any creditors' committee or

equity security holders' committee, to any indenture trustee, and to such other entity as the court

designates;

(a)(5) as soon as practicable, file a plan under section 1121 of this title, file a report of why the

trustee will not file a plan, or recommend conversion of the case to a case under chapter 7, 12, or

13 of this title or dismissal of the case;

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(a)(6) for any year for which the debtor has not filed a tax return required by law, furnish,

without personal liability, such information as may be required by the governmental unit with

which such tax return was to be filed, in light of the condition of the debtor's books and records

and the availability of such information;

(a)(7) after confirmation of a plan, file such reports as are necessary or as the court orders; and

(a)(8) if with respect to the debtor there is a claim for a domestic support obligation, provide the

applicable notice specified in subsection (c).

(a)(8)(b) An examiner appointed under section 1104(d) of this title shall perform the duties

specified in paragraphs (3) and (4) of subsection (a) of this section, and, except to the extent that

the court orders otherwise, any other duties of the trustee that the court orders the debtor in

possession not to perform.

(a)(8)(c)(1) In a case described in subsection (a)(8) to which subsection (a)(8) applies, the trustee

shall--

(a)(8)(c)(A)(i) provide written notice to the holder of the claim described in subsection (a)(8) of

such claim and of the right of such holder to use the services of the State child support

enforcement agency established under sections 464 and 466 of the Social Security Act for the

State in which such holder resides, for assistance in collecting child support during and after the

case under this title; and

(a)(8)(c)(A)(ii) include in the notice required by clause (i) the address and telephone number of

such State child support enforcement agency;

(a)(8)(B)(i) provide written notice to such State child support enforcement agency of such claim;

and

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(a)(8)(b)(ii) include in the notice required by clause (i) the name, address, and telephone number

of such holder; and

(a)(8)(C) at such time as the debtor is granted a discharge under section 1141, provide written

notice to such holder and to such State child support enforcement agency of--

(a)(8)(c)(i) the granting of the discharge;

(a)(8)(c)(ii) the last recent known address of the debtor;

(a)(8(c)(iii) the last recent known name and address of the debtor's employer; and

(a)(8)(c)(iv) the name of each creditor that holds a claim that--

(a(8)(c)(iv)(I) is not discharged under paragraph (2), (4), or (14A) of section 523(a); or

(a)(8)(c)(iv)(II) was reaffirmed by the debtor under section 524(c).

(2)(A) The holder of a claim described in subsection (a)(8) or the State child enforcement

support agency of the State in which such holder resides may request from a creditor described in

paragraph (1)(C)(iv) the last known address of the debtor.

(2)(B) Notwithstanding any other provision of law, a creditor that makes a disclosure of a last

known address of a debtor in connection with a request made under subparagraph (A) shall not

be liable by reason of making such disclosure.

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APPENDIX J 11 U.S.C. § 1107(a) (2012).

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.

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APPENDIX K 11 U.S.C. § 1129 (a)(9) (2012).

Confirmation of plan.

(a) The court shall confirm a plan only if all of the following requirements are met:

(a)(9) Except to the extent that the holder of a particular claim has agreed to a different

treatment of such claim, the plan provides that--

(a)(9)(A) with respect to a claim of a kind specified in section 507(a)(2) or 507(a)(3) of this title,

on the effective date of the plan, the holder of such claim will receive on account of such claim

cash equal to the allowed amount of such claim;

(a)(9)(B) with respect to a class of claims of a kind specified in section

507(a)(1), 507(a)(4), 507(a)(5), 507(a)(6), or 507(a)(7) of this title, each holder of a claim of

such class will receive--

(a)(9)(b)(i) if such class has accepted the plan, deferred cash payments of a value, as of the

effective date of the plan, equal to the allowed amount of such claim; or

(a)(9)(b)(ii) if such class has not accepted the plan, cash on the effective date of the plan equal to

the allowed amount of such claim;

(a)(9)(C) with respect to a claim of a kind specified in section 507(a)(8) of this title, the holder

of such claim will receive on account of such claim regular installment payments in cash--

(a)(9)(c)(i) of a total value, as of the effective date of the plan, equal to the allowed amount of

such claim;

(a)(9)(c)(ii) over a period ending not later than 5 years after the date of the order for relief

under section 301, 302, or 303; and

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(a)(9)(c)(iii) in a manner not less favorable than the most favored nonpriority unsecured claim

provided for by the plan (other than cash payments made to a class of creditors under section

1122(b); and

(a)(9)(D) with respect to a secured claim which would otherwise meet the description of an

unsecured claim of a governmental unit under section 507(a)(8), but for the secured status of that

claim, the holder of that claim will receive on account of that claim, cash payments, in the same

manner and over the same period, as prescribed in subparagraph (C).

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APPENDIX L 11 U.S.C. § 1129(b) (2012).

Confirmation of plan.

(b)(1) Notwithstanding section 510(a) of this title, if all of the applicable requirements of

subsection (a) of this section other than paragraph (8) are met with respect to a plan, the court, on

request of the proponent of the plan, shall confirm the plan notwithstanding the requirements of

such paragraph if the plan does not discriminate unfairly, and is fair and equitable, with respect

to each class of claims or interests that is impaired under, and has not accepted, the plan.

(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:

(b)(2)(A) With respect to a class of secured claims, the plan provides--

(b)(2)(A)(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

(b)(2)(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;

(b)(2)(A)(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

(b)(2)(A)(iii) for the realization by such holders of the indubitable equivalent of such claims.

(b)(2)(B) With respect to a class of unsecured claims--

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(b)(2)(B)(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

(b)(2)(B)(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.

(b)(2)(C) With respect to a class of interests--

(b)(2)(C)(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

(b)(2)(C)(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.

(b)(2)(c) Notwithstanding subsections (a) and (b) of this section and except as provided

in section 1127(b) of this title, the court may confirm only one plan, unless the order of

confirmation in the case has been revoked under section 1144 of this title. If the requirements of

subsections (a) and (b) of this section are met with respect to more than one plan, the court shall

consider the preferences of creditors and equity security holders in determining which plan to

confirm.

(b)(2)(d) Notwithstanding any other provision of this section, on request of a party in interest

that is a governmental unit, the court may not confirm a plan if the principal purpose of the plan

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is the avoidance of taxes or the avoidance of the application of section 5 of the Securities Act of

1933. In any hearing under this subsection, the governmental unit has the burden of proof on the

issue of avoidance.

(b)(2)(e) In a small business case, the court shall confirm a plan that complies with the

applicable provisions of this title and that is filed in accordance with section 1121(e) not later

than 45 days after the plan is filed unless the time for confirmation is extended in accordance

with section 1121(e)(3).

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APPENDIX M 28 U.S.C. § 2075 (2012).

Bankruptcy rules.

The Supreme Court shall have the power to prescribe by general rules, the forms of process,

writs, pleadings, and motions, and the practice and procedure in cases under title 11.

Such rules shall not abridge, enlarge, or modify any substantive right.

The Supreme Court shall transmit to Congress not later than May 1 of the year in which a rule

prescribed under this section is to become effective a copy of the proposed rule. The rule shall

take effect no earlier than December 1 of the year in which it is transmitted to Congress unless

otherwise provided by law.

The bankruptcy rules promulgated under this section shall prescribe a form for the statement

required under section 707(b)(2)(C) of title 11 and may provide general rules on the content of

such statement.