2009 Chapter 11 Recent Developments (Part I)

Holding: The claims are allowed only to the extent the claims are for the goods provided; and the Gas Creditor is not precluded from filing a § 503(b)(9) claim under § 366.

Reasoning: Under the definition of 'goods' in the Michigan UCC, all of the things provided by the creditors to the Debtors constitute goods. Although the court agrees that it may be difficult to determine the value of goods delivered when a creditor was delivering both goods and services to debtors, there is nothing in the language of § 503(b)(9) that "somehow disqualifies a § 503(b)(9) claim just because the contract pursuant to which the goods were sold also provides for the sale of services." Also, nothing in § 503(b)(9) requires that the creditor have reclamation rights of the goods under § 546. Lastly, the court notes that "§ 503(b)(9) addresses the sale of goods pre-petition and § 366 addresses the provision of utility services post-petition." Sections 503(b)(9) and 366 are not mutually exclusive and rights under § 503(b)(9) are not dependent on the availability of alternative remedies under the Bankruptcy Code.

b. Secured Claims and Liens

Clear Channel Outdoor, Inc. v. Knupfer, et. al. (In re PW, LLC), 391 B.R. 25 (B.A.P. 9th Cir. 2008)

Facts: PW, LLC (the "Debtor") held real estate in Burbank, California (the "Property") over which DB Burbank, LLC ("DB") held a secured claim of more than $40 million. Nancy Knupfer was the chapter 11 trustee (the "Trustee") appointed when the Debtor declared bankruptcy. Clear Channel Outdoor, Inc. ("CCO") - the junior lienholder - held a consensual lien securing around $2.5 million. At the sale (the "Sale") of the Debtor's Property in bankruptcy, DB was the highest bidder paying its consideration by a credit-bid of the entire amount of its debt. The Trustee had moved that the Sale be approved free and clear of any liens under §§ 363(f)(3) and (f)(5), which was approved by the bankruptcy court over CCO's objection. When the Sale was consummated, CCO received no money from the Sale since there were no proceeds due to the fact that DB had credit-bid the entire purchase price. DB paid certain closing costs of around $1.5 million (the "Carve Out Amount") and CCO also argues that their lien attaches to such money.

Issues: "Outside a plan of reorganization, does § 363(f) of the Bankruptcy Code permit a secured creditor to credit bid its debt and purchase estate property, taking title free and clear of valid, unconsenting junior liens?"

Rules:

(1)

"Congress intended that § 363(m) address only changes of title or other essential attributes of a sale, together with the changes of authorized possession that occur with leases. The terms of those sales, including the 'free and clear' term at issue here, are not protected."

(2)

"§ 363(f)(3) does not authorize the sale free and clear of a lienholder's interest if the price of the estate property is equal to or less than the aggregate amount of all claims held by creditors who hold a lien or security interest in the property being sold."

(3)

Section 363(f)(5) has three elements: "that (1) a proceeding exists or could be brought, in which

(2)

the nondebtor could be compelled to accept a money satisfaction of (3) its interest." To invoke § 363(f)(5) a bankruptcy court must "make a finding of the existence of such a mechanism and the trustee must demonstrate how satisfaction of the lien 'could be compelled.'" And, "Congress did intend under § 363(f)(5) that nonconsensual confirmation be a type of legal or equitable proceeding to which that paragraph refers... the availability of cramdown under § 1129(b)(2) is not a legal or equitable proceeding to which § 363(f)(5) is applicable."

Holding: Section 363(f) does not permit the purchase of estate property free and clear of valid, unconsenting junior liens. A junior lienholder's rights are preserved.