Highlights from Justice Antonin Scalia’s Bankruptcy Opinions

Justice Antonin Scalia's death this past February left a vacancy on the Supreme Court and set off a partisan battle over the confirmation of his successor. In the months following his death, his legacy and conservative sway on the world’s most powerful Court has been examined, and much attention has been given to his legal opinions, both in terms of his writing style and conservative substance. He also left a mark on the bankruptcy world (albeit a more delicate one), having written for the majority in several pivotal bankruptcy decisions and authoring pointed dissents during his nearly-30-year term. Below are some highlights from Justice Scalia’s major bankruptcy opinions.

One of the more significant bankruptcy decisions during Justice Scalia’s tenure was the famous (or perhaps infamous) Till v. SCS Credit Corp.[1] case, which addressed the appropriate rate of interest that should be applied to loans extended to bankrupt debtors. The holding in this case certainly influenced bankruptcy law in the ensuing years. Notably, Justice Scalia disagreed with the majority in this case and took issue with using the prime rate to cram down plans, advocating for the contract rate. He stated:

The plurality would use the prime lending rate — a rate we know is too low — and require the judge in every case to determine an amount by which to increase it. I believe that, in practice, this approach will systematically undercompensate secured creditors for the true risks of default. I would instead adopt the contract rate — i.e., the rate at which the creditor actually loaned funds to the debtor — as a presumption that the bankruptcy judge could revise on motion of either party. Since that rate is generally a good indicator of actual risk, disputes should be infrequent, and it will provide a quick and reasonably accurate standard.[2]

His dissent in the lien-stripping case of Dewsnup v. Timm[3] is also notable. Justice Scalia challenged the majority’s conclusion that “allowed secured claim” had different meanings in subsections (a) and (d) of § 506 of the Bankruptcy Code. He expressed concern that, as a result of the decision,

unfortunate future litigants will have to pay the price for our expressed neutrality as to whether the words “allowed secured claim” have different meaning in other provisions of the Bankruptcy Code.... Having taken this case to resolve uncertainty regarding one provision, we end by spawning confusion regarding scores of others.[4]

Law v. Siegel[5] is a relatively recent decision in which Justice Scalia wrote for the majority. In Siegel, the Court held that the bankruptcy court exceeded its authority when it ordered that a debtor’s exempt assets be used to pay administrative expenses incurred as a result of the debtor’s misconduct. The issue hinged on the equitable powers of bankruptcy courts, and the Court was faced with a debtor who had engaged in deplorable conduct. Consistent with Justice Scalia’s ideology, the Supreme Court applied the plain language of the Code in holding that the Court’s authority was limited even under these circumstances.

Also significant is BFP v. Resolution Trust Corp.[6] In this case, a chapter 11 debtor brought a fraudulent transfer proceeding to avoid a mortgage foreclosure sale on the theory that the price received was less than the “reasonably equivalent value” of the property. The Supreme Court (with Justice Scalia writing for the majority) held that the price received at a mortgage foreclosure sale conclusively established “reasonably equivalent value,” as long as state foreclosure requirements are met. This case spurred the hotly contested question of whether this decision also prohibits a debtor’s avoidance of an otherwise-valid repetition foreclosure sale as a preferential transfer under § 547 of the Code.

Justice Scalia wrote several significant concurrences as well. One was in Begier v. I.R.S.[7] In this case, the chapter 7 trustee brought suit seeking to avoid as preferences certain repetition payments of trust fund taxes to the IRS. The Court held that payroll and excise taxes are held in trust and that payment of such taxes prior to bankruptcy does not constitute a preference. Justice Scalia agreed with the result but took issue with the majority’s reliance on committee reports, staying true to his statutory interpretation roots and stating, “I think it both demeaning and unproductive for us to ponder whether to adopt literal or not-so-literal readings of Committee Reports, as though they were controlling statutory text.”[8]

Lastly, Justice Scalia authored the opinion in United Sav. Ass’n of Texas v. Timbers of Inwood Forest Associates, Ltd.,[9] in which the Court interpreted the “adequate protection” requirement, holding that a protected right to payment does not also entitle creditors to immediate possession of their collateral. In interpreting the statutory scheme, Justice Scalia called statutory construction a “holistic endeavor” and stated an oft-cited concept of statutory construction:

A provision that may seem ambiguous in isolation is often clarified by the remainder of the statutory scheme — because the same terminology is used elsewhere in a context that makes its meaning clear ... or because only one of the permissible meanings produces a substantive effect that is compatible with the rest of the law.[10]

Justice Scalia significantly influenced decisional law in the bankruptcy context. He consistently adhered to his “plain language” interpretations of the Code. Although his bankruptcy decisions were less provocative than some of his other writings, they shaped how we approach some of the most important bankruptcy concepts today. It will be interesting to observe the Court’s post-Scalia approach to statutory interpretation in the bankruptcy context.