A few weeks ago, a panel of the Eleventh Circuit issued an opinion, In re Seaside Engineering & Surveying, Inc., No. 14-11590, denying an appeal of a chapter 11 confirmation order, that includes, among several issues considered, a brief holding relying on [a misreading of] Till v SCS Credit Corp. The entire section of the opinion dealing with Till is only 7 sentences and 12 lines long. The case involved a tiny amount of money - the debtor's business was valued at only $200,000 - and I suspect the court did not receive in-depth advocacy on the topic.
Here is the entire section of the opinion dealing with Till:
"E. Interest Rate on Promissory Notes Exchanged Pursuant to the Second Amended Restructuring Plan. Vision did not receive an immediate cash payment for its interest in Seaside; rather, Vision received promissory notes accruing with an interest rate of 4.25%. Vision argues that this rate does not adequately compensate for the highly prospective nature of the notes. This Court reviews the adequacy of the interest rate for clear error. In re Brice Rd. Devs., 392 B.R. 274, 280 (B.A.P. 6th Cir .2008).The Supreme Court adopted the formula approach for determining the interest rate payable to creditors in bankruptcy proceedings. Till v. SCS Credit Corp., 541 U.S. 465, 478–79, 124 S.Ct. 1951, 1961, 158 L.Ed.2d 787 (2004). “Taking its cue from ordinary lending practices, the approach begins by looking to the national prime rate․ Because bankrupt debtors typically pose a greater risk of nonpayment than solvent commercial borrowers, the approach then requires a bankruptcy court to adjust the prime rate accordingly.” Id. Here, the bankruptcy court applied this formula, adding a 1% adjustment to the prime rate of 3.25%. The 1% adjustment is within the range suggested by the Supreme Court in Till, 124 S.Ct. at 1962, and therefore the bankruptcy court committed no clear error."
On the face of the text excerpted, one can see clear error. The Supreme Court did not, in Till, adopt "the formula approach for determining the interest rate payable to creditors in bankruptcy proceedings". That statement is wrong in two ways. First, Till had three opinions, none of which commanded a majority of the Justices. Thus, the "formula approach" is not what the "Court adopted" because the divided Court adopted nothing. (read the syllabus of the case if you think I am wrong; you will note that the only thing identified as being "of the Court" is the judgment (vacating and remanding). Everything else is merely an opinion of the various Justices.) The "formula approach" was just what the four Justices in the middle of the spectrum of opinions happened to agree on, nothing more or less. The only holding that can be divined in Till is that the "forced loan" approach cannot be used to determine the value, as of the effective date, of deferred payments in a chapter 13 plan.
Second, and more substantive, Till was a chapter 13 case and there is nothing in the opinion that purports to impose the plurality's "formula approach" in all other "bankruptcy proceedings" as the Seaside opinion says. As I have written before, and as anyone who looks at the text of the Bankruptcy Code with a fresh eye can see, cramdown in a chapter 11 case like Seaside is governed by a different standard than cramdown in a chapter 13 case like Till. The cramdown section of chapter 11 mandates scrutiny pursuant to the century-old "fair and equitable" standard, which does not appear in chapter 13. Courts adjudicating chapter 11 cramdown battles need to follow the precedent interpreting "fair and equitable"; courts adjudicating chapter 13 cramdowns are not subject to that standard because that language is not found in chapter 13. Moreover, as I recounted last year, when one looks at the briefs and argument before the Court in Till, one sees that the Tills, the Solicitor General and the Justices all rejected the idea that chapter 11 precedent had any bearing on the question before the Court in Till.
Courts should not be looking at Till at all in adjudicating chapter 11 cramdowns.
